PowerCell Sweden AB (publ)'s (STO:PCELL) Share Price Is Still Matching Investor Opinion Despite 25% Slump

PowerCell Sweden AB (publ) (STO:PCELL) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 73% loss during that time.

In spite of the heavy fall in price, given around half the companies in Sweden's Electrical industry have price-to-sales ratios (or "P/S") below 1.5x, you may still consider PowerCell Sweden as a stock to avoid entirely with its 3.8x 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.

View our latest analysis for PowerCell Sweden

What Does PowerCell Sweden's Recent Performance Look Like?

PowerCell Sweden certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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 17%. The strong recent performance means it was also able to grow revenue by 180% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 36% each year during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 24% each year growth forecast for the broader industry.

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.

The Key Takeaway

PowerCell Sweden's shares may have suffered, but its P/S remains high. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that PowerCell Sweden maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electrical industry, as expected. 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.

Having said that, be aware PowerCell Sweden is showing 2 warning signs in our investment analysis, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com