Studsvik AB (publ) (STO:SVIK) Stock Rockets 25% As Investors Are Less Pessimistic Than Expected

Studsvik AB (publ) (STO:SVIK) shareholders have had their patience rewarded with a 25% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 90%.

After such a large jump in price, when almost half of the companies in Sweden's Commercial Services industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider Studsvik as a stock probably not worth researching with its 2.1x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Studsvik

What Does Studsvik's P/S Mean For Shareholders?

Recent times have been advantageous for Studsvik as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Studsvik'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 outperform the industry for P/S ratios like Studsvik's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.9% last year. The latest three year period has also seen a 9.4% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 3.6% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 8.7% per year, which is noticeably more attractive.

With this information, we find it concerning that Studsvik is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Studsvik's P/S?

Studsvik shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

It comes as a surprise to see Studsvik trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Studsvik, and understanding should be part of your investment process.

If you're unsure about the strength of Studsvik'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.