Mentice AB (publ)'s (STO:MNTC) Shares Climb 29% But Its Business Is Yet to Catch Up

Mentice AB (publ) (STO:MNTC) shares have continued their recent momentum with a 29% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 36%.

After such a large jump in price, when almost half of the companies in Sweden's Healthcare Services industry have price-to-sales ratios (or "P/S") below 1.7x, you may consider Mentice as a stock not worth researching with its 4.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Mentice

How Mentice Has Been Performing

With revenue growth that's superior to most other companies of late, Mentice has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Mentice will help you uncover what's on the horizon.

How Is Mentice's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 27%. The latest three year period has also seen an excellent 80% overall rise in revenue, aided by its short-term performance. 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 23% each year as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 22% per annum, which is not materially different.

In light of this, it's curious that Mentice's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What Does Mentice's P/S Mean For Investors?

The strong share price surge has lead to Mentice's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Mentice currently trades on a higher than expected P/S. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Mentice with six simple checks on some of these key factors.

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