WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji S.A. (WSE:WOD) Held Back By Insufficient Growth Even After Shares Climb 49%

WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji S.A. (WSE:WOD) shareholders would be excited to see that the share price has had a great month, posting a 49% gain and recovering from prior weakness. Looking further back, the 25% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

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 1.1x, considering almost half of all companies in the Water Utilities industry 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.

See our latest analysis for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji

How Has WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji Performed Recently?

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.

Although there are no analyst estimates available for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.8% last year. The latest three year period has also seen a 18% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 9.0% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The latest share price surge wasn't enough to lift WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 3 warning signs for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji (2 can't be ignored!) 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.