Even With A 26% Surge, Cautious Investors Are Not Rewarding WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji S.A.'s (WSE:WOD) Performance Completely

The WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji S.A. (WSE:WOD) share price has done very well over the last month, posting an excellent gain of 26%. The last 30 days bring the annual gain to a very sharp 38%.

Although its price has surged higher, WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.9x, considering almost half of all companies in the Water Utilities industry in Poland have P/S ratios greater than 1.6x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

View our latest analysis for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji

How WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji Has Been Performing

WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 10% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 29% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 3.1% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Despite WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We're very surprised to see WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji (including 2 which shouldn't be ignored).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.