A Piece Of The Puzzle Missing From SolTech Energy Sweden AB (publ)'s (STO:SOLT) 37% Share Price Climb

SolTech Energy Sweden AB (publ) (STO:SOLT) shareholders are no doubt pleased to see that the share price has bounced 37% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 55% share price decline over the last year.

Even after such a large jump in price, it would still be understandable if you think SolTech Energy Sweden is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.3x, considering almost half the companies in Sweden's Electrical industry have P/S ratios above 1.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for SolTech Energy Sweden

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

SolTech Energy Sweden certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for SolTech Energy Sweden, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as SolTech Energy Sweden's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 53% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 24% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's peculiar that SolTech Energy Sweden's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From SolTech Energy Sweden's P/S?

The latest share price surge wasn't enough to lift SolTech Energy Sweden's P/S close to the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We're very surprised to see SolTech Energy Sweden currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for SolTech Energy Sweden (1 makes us a bit uncomfortable!) that you should be aware of.

If you're unsure about the strength of SolTech Energy 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.