PowerCell Sweden AB (publ) (STO:PCELL) Looks Just Right With A 35% Price Jump

The PowerCell Sweden AB (publ) (STO:PCELL) share price has done very well over the last month, posting an excellent gain of 35%. Notwithstanding the latest gain, the annual share price return of 3.4% isn't as impressive.

Since its price has surged higher, when almost half of the companies in Sweden's Electrical industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider PowerCell Sweden as a stock not worth researching with its 5.9x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for PowerCell Sweden

What Does PowerCell Sweden's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, PowerCell Sweden has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 37%. Pleasingly, revenue has also lifted 117% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 19% per year over the next three years. That's shaping up to be materially higher than the 8.0% each year growth forecast for the broader industry.

With this information, we can see why PowerCell Sweden is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

PowerCell Sweden'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 PowerCell Sweden'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. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for PowerCell Sweden (1 is potentially serious!) that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.