S.C. ArcelorMittal Hunedoara S.A. (BVB:SIDG) Stock Rockets 51% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, S.C. ArcelorMittal Hunedoara S.A. (BVB:SIDG) shares have been powering on, with a gain of 51% in the last thirty days. The last 30 days bring the annual gain to a very sharp 44%.

After such a large jump in price, when almost half of the companies in Romania's Metals and Mining industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider S.C. ArcelorMittal Hunedoara as a stock probably not worth researching with its 1.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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Check out our latest analysis for S.C. ArcelorMittal Hunedoara

What Does S.C. ArcelorMittal Hunedoara's Recent Performance Look Like?

For example, consider that S.C. ArcelorMittal Hunedoara's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for S.C. ArcelorMittal Hunedoara, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

S.C. ArcelorMittal Hunedoara's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a frustrating 40% decrease to the company's top line. As a result, revenue from three years ago have also fallen 51% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 3.0% shows it's an unpleasant look.

With this in mind, we find it worrying that S.C. ArcelorMittal Hunedoara's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On S.C. ArcelorMittal Hunedoara's P/S

The large bounce in S.C. ArcelorMittal Hunedoara's shares has lifted the company's P/S handsomely. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of S.C. ArcelorMittal Hunedoara revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Plus, you should also learn about these 2 warning signs we've spotted with S.C. ArcelorMittal Hunedoara.

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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.