Market Cool On Cavotec SA's (STO:CCC) Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.7x Cavotec SA (STO:CCC) is a stock worth checking out, seeing as almost half of all the Machinery companies in Sweden have P/S ratios greater than 1.7x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Cavotec

How Cavotec Has Been Performing

With revenue growth that's superior to most other companies of late, Cavotec has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cavotec.

Is There Any Revenue Growth Forecasted For Cavotec?

In order to justify its P/S ratio, Cavotec would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 45%. Still, revenue has fallen 1.6% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 15% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 4.1% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Cavotec's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

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.

To us, it seems Cavotec currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Cavotec that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.