EQT AB (publ) (STO:EQT) Stocks Shoot Up 25% But Its P/S Still Looks Reasonable

EQT AB (publ) (STO:EQT) shareholders have had their patience rewarded with a 25% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 77% in the last year.

After such a large jump in price, EQT may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 17.4x, when you consider almost half of the companies in the Capital Markets industry in Sweden have P/S ratios under 5x and even P/S lower than 0.9x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for EQT

How Has EQT Performed Recently?

There hasn't been much to differentiate EQT's and the industry's revenue growth lately. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on EQT.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as steep as EQT's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 39% gain to the company's top line. Pleasingly, revenue has also lifted 194% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 20% per year over the next three years. With the industry only predicted to deliver 17% each year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why EQT's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On EQT's P/S

The strong share price surge has lead to EQT's P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into EQT shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware EQT is showing 2 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.