MilDef Group AB (publ) (STO:MILDEF) Stocks Shoot Up 30% But Its P/S Still Looks Reasonable

MilDef Group AB (publ) (STO:MILDEF) shares have continued their recent momentum with a 30% gain in the last month alone. The last month tops off a massive increase of 148% in the last year.

Following the firm bounce in price, given around half the companies in Sweden's Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider MilDef Group as a stock to avoid entirely with its 6.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for MilDef Group

How Has MilDef Group Performed Recently?

MilDef Group could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For MilDef Group?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 4.3% last year. The latest three year period has also seen an excellent 156% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 41% each year as estimated by the four analysts watching the company. With the industry only predicted to deliver 13% each year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why MilDef Group's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does MilDef Group's P/S Mean For Investors?

MilDef Group's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of MilDef Group's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - MilDef Group has 1 warning sign we think you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.