CCC S.A.'s (WSE:CCC) 28% Share Price Surge Not Quite Adding Up

CCC S.A. (WSE:CCC) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The annual gain comes to 226% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given close to half the companies operating in Poland's Specialty Retail industry have price-to-sales ratios (or "P/S") below 0.8x, you may consider CCC as a stock to potentially avoid with its 1.6x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for CCC

What Does CCC's P/S Mean For Shareholders?

There hasn't been much to differentiate CCC's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on CCC will help you uncover what's on the horizon.

How Is CCC's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as CCC's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.4% last year. This was backed up an excellent period prior to see revenue up by 34% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the nine analysts watching the company. With the industry predicted to deliver 13% growth each year, the company is positioned for a comparable revenue result.

In light of this, it's curious that CCC's P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On CCC's P/S

The large bounce in CCC's shares has lifted the company's P/S handsomely. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that CCC currently trades on a higher than expected P/S. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. A positive change is needed in order to justify the current price-to-sales ratio.

It is also worth noting that we have found 1 warning sign for CCC that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.