I-Tech AB's (STO:ITECH) Shares May Have Run Too Fast Too Soon

There wouldn't be many who think I-Tech AB's (STO:ITECH) price-to-sales (or "P/S") ratio of 4x is worth a mention when the median P/S for the Chemicals industry in Sweden is similar at about 4.5x. 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 I-Tech

What Does I-Tech's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, I-Tech has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is I-Tech's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like I-Tech's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 99% gain to the company's top line. The latest three year period has also seen an excellent 103% 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.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 18% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 28% per year, which is noticeably more attractive.

With this in mind, we find it intriguing that I-Tech's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

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 at the analysts forecasts of I-Tech's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 1 warning sign for I-Tech that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.