What Nextbike Polska S.A.'s (WSE:NXB) 46% Share Price Gain Is Not Telling You

Despite an already strong run, Nextbike Polska S.A. (WSE:NXB) shares have been powering on, with a gain of 46% in the last thirty days. The last 30 days bring the annual gain to a very sharp 70%.

Although its price has surged higher, it's still not a stretch to say that Nextbike Polska's price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Transportation industry in Poland, where the median P/S ratio is around 0.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Nextbike Polska

What Does Nextbike Polska's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Nextbike Polska over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Nextbike Polska will help you shine a light on its historical performance.

How Is Nextbike Polska's Revenue Growth Trending?

In order to justify its P/S ratio, Nextbike Polska would need to produce growth that's similar to the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 13%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 8.3% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Nextbike Polska is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

Its shares have lifted substantially and now Nextbike Polska's P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Nextbike Polska's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Nextbike Polska, and understanding them should be part of your investment process.

If you're unsure about the strength of Nextbike Polska's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com