W5 Solutions AB (publ) (STO:W5) Looks Just Right With A 47% Price Jump

Despite an already strong run, W5 Solutions AB (publ) (STO:W5) shares have been powering on, with a gain of 47% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 23% over that time.

Although its price has surged higher, you could still be forgiven for feeling indifferent about W5 Solutions' P/S ratio of 2.7x, since the median price-to-sales (or "P/S") ratio for the Aerospace & Defense industry in Sweden is about the same. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for W5 Solutions

What Does W5 Solutions' P/S Mean For Shareholders?

W5 Solutions could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think W5 Solutions' 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 P/S?

In order to justify its P/S ratio, W5 Solutions would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 4.4% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 212% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 17% per year as estimated by the four analysts watching the company. With the industry predicted to deliver 18% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's understandable that W5 Solutions' P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

W5 Solutions' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

A W5 Solutions' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Aerospace & Defense industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

You should always think about risks. Case in point, we've spotted 1 warning sign for W5 Solutions you should be aware of.

If these risks are making you reconsider your opinion on W5 Solutions, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.