Positive Sentiment Still Eludes SolTech Energy Sweden AB (publ) (STO:SOLT) Following 25% Share Price Slump

To the annoyance of some shareholders, SolTech Energy Sweden AB (publ) (STO:SOLT) shares are down a considerable 25% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 68% share price decline.

Since its price has dipped substantially, it would 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 0.2x, considering almost half the companies in Sweden's Electrical industry have P/S ratios above 1.1x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for SolTech Energy Sweden

What Does SolTech Energy Sweden's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, SolTech Energy Sweden has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on SolTech Energy Sweden's earnings, revenue and cash flow.

How Is SolTech Energy Sweden's Revenue Growth Trending?

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. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 15% over the next year, materially lower than the company's recent medium-term annualised growth rates.

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?

SolTech Energy Sweden's recently weak share price has pulled its P/S back below other Electrical companies. 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'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. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

You need to take note of risks, for example - SolTech Energy Sweden has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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.