PowerCell Sweden AB (publ) (STO:PCELL) Stocks Shoot Up 32% But Its P/S Still Looks Reasonable

PowerCell Sweden AB (publ) (STO:PCELL) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

After such a large jump in price, you could be forgiven for thinking PowerCell Sweden is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.5x, considering almost half the companies in Sweden's Electrical industry have P/S ratios below 2x. 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.

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See our latest analysis for PowerCell Sweden

How PowerCell Sweden Has Been Performing

PowerCell Sweden certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. 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 PowerCell Sweden will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For PowerCell Sweden?

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.

Taking a look back first, we see that the company grew revenue by an impressive 33% last year. Pleasingly, revenue has also lifted 122% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 17% over the next year. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that PowerCell Sweden's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

The strong share price surge has lead to PowerCell Sweden's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

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. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for PowerCell Sweden you should know about.

If you're unsure about the strength of PowerCell Sweden's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.