Clavister Holding AB (publ.)'s (STO:CLAV) 29% Share Price Surge Not Quite Adding Up

Clavister Holding AB (publ.) (STO:CLAV) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 49% in the last twelve months.

Following the firm bounce in price, when almost half of the companies in Sweden's Software industry have price-to-sales ratios (or "P/S") below 2.2x, you may consider Clavister Holding AB (publ.) as a stock probably not worth researching with its 2.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Clavister Holding AB (publ.)

What Does Clavister Holding AB (publ.)'s Recent Performance Look Like?

There hasn't been much to differentiate Clavister Holding AB (publ.)'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. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Clavister Holding AB (publ.)'s future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Clavister Holding AB (publ.)'s to be considered reasonable.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. The latest three year period has also seen an excellent 54% 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.

Looking ahead now, revenue is anticipated to climb by 18% during the coming year according to the lone analyst following the company. That's shaping up to be similar to the 19% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Clavister Holding AB (publ.)'s P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Clavister Holding AB (publ.)'s P/S Mean For Investors?

Clavister Holding AB (publ.) 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.

Analysts are forecasting Clavister Holding AB (publ.)'s revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. A positive change is needed in order to justify the current price-to-sales ratio.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Clavister Holding AB (publ.) (at least 2 which can't be ignored), and understanding them should be part of your investment process.

If you're unsure about the strength of Clavister Holding AB (publ.)'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.