Take Care Before Diving Into The Deep End On Ecoclime Group AB (publ) (STO:ECC B)

With a median price-to-sales (or "P/S") ratio of close to 1x in the Building industry in Sweden, you could be forgiven for feeling indifferent about Ecoclime Group AB (publ)'s (STO:ECC B) P/S ratio of 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Ecoclime Group

What Does Ecoclime Group's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Ecoclime Group has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. 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 not quite in favour.

Keen to find out how analysts think Ecoclime Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Ecoclime Group?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Ecoclime Group's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 50% last year. The strong recent performance means it was also able to grow revenue by 155% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 19% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 12% growth forecast for the broader industry.

In light of this, it's curious that Ecoclime Group's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced 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.

We've established that Ecoclime Group currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Plus, you should also learn about this 1 warning sign we've spotted with Ecoclime Group.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.