Solidx AB (publ)'s (NGM:SOLIDX) Shares Leap 35% Yet They're Still Not Telling The Full Story

Solidx AB (publ) (NGM:SOLIDX) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 11% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Solidx's price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" compared to the IT industry in Sweden, where the median P/S ratio is around 0.9x. 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.

See our latest analysis for Solidx

How Has Solidx Performed Recently?

Revenue has risen firmly for Solidx recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. Those who are bullish on Solidx will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Solidx, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 26%. Pleasingly, revenue has also lifted 243% 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.

In contrast to the company, the rest of the industry is expected to decline by 1.4% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

With this in mind, we find it intriguing that Solidx's P/S matches its industry peers. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

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

Solidx's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Solidx revealed its growing revenue over the medium-term hasn't helped elevate its P/S above that of the industry, which is surprising given the industry is set to shrink. When we see a history of positive growth in a struggling industry, but only an average P/S, we assume potential risks are what might be placing pressure on the P/S ratio. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. The fact that the company's relative performance has not provided a kick to the share price suggests that some investors are anticipating revenue instability.

You need to take note of risks, for example - Solidx has 4 warning signs (and 2 which make us uncomfortable) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.