Potential Upside For WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji S.A. (WSE:WOD) Not Without Risk

You may think that with a price-to-sales (or "P/S") ratio of 0.7x WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji S.A. (WSE:WOD) is a stock worth checking out, seeing as almost half of all the Water Utilities companies in Poland have P/S ratios greater than 1.7x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji

What Does WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's Recent Performance Look Like?

Revenue has risen firmly for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. The strong recent performance means it was also able to grow revenue by 31% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 5.0%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it odd that WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

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 robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Before you settle on your opinion, we've discovered 3 warning signs for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.