What You Can Learn From Eolus Vind AB (publ)'s (STO:EOLU B) P/S After Its 26% Share Price Crash

To the annoyance of some shareholders, Eolus Vind AB (publ) (STO:EOLU B) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 43% in that time.

In spite of the heavy fall in price, given around half the companies in Sweden's Construction industry have price-to-sales ratios (or "P/S") below 0.7x, you may still consider Eolus Vind as a stock to avoid entirely with its 3.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Eolus Vind

How Eolus Vind Has Been Performing

Eolus Vind could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Eolus Vind will help you uncover what's on the horizon.

How Is Eolus Vind's Revenue Growth Trending?

In order to justify its P/S ratio, Eolus Vind would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 85% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 83% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 224% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 9.7% growth forecast for the broader industry.

In light of this, it's understandable that Eolus Vind's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Eolus Vind's P/S Mean For Investors?

Even after such a strong price drop, Eolus Vind's P/S still exceeds the industry median significantly. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Eolus Vind's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Eolus Vind (of which 2 are significant!) you should know about.

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.