MilDef Group AB (publ) (STO:MILDEF) Stocks Shoot Up 25% But Its P/S Still Looks Reasonable

MilDef Group AB (publ) (STO:MILDEF) shares have continued their recent momentum with a 25% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 73% in the last year.

Since its price has surged higher, given close to half the companies operating in Sweden's Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 2.6x, you may consider MilDef Group as a stock to potentially avoid with its 3.9x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for MilDef Group

What Does MilDef Group's Recent Performance Look Like?

MilDef Group could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

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

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

The only time you'd be truly comfortable seeing a P/S as high as MilDef Group's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Still, the latest three year period has seen an excellent 120% overall rise in revenue, in spite of its uninspiring short-term performance. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 78% over the next year. That's shaping up to be materially higher than the 19% growth forecast for the broader industry.

In light of this, it's understandable that MilDef Group'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.

The Key Takeaway

The large bounce in MilDef Group's shares has lifted the company's P/S handsomely. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that MilDef Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Aerospace & Defense industry, as expected. 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for MilDef Group with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on MilDef Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.