After Leaping 31% Teneo AI AB (publ) (STO:TENEO) Shares Are Not Flying Under The Radar

Despite an already strong run, Teneo AI AB (publ) (STO:TENEO) shares have been powering on, with a gain of 31% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 5.9% isn't as impressive.

After such a large jump in price, given close to half the companies operating in Sweden's Software industry have price-to-sales ratios (or "P/S") below 2.3x, you may consider Teneo AI as a stock to potentially avoid with its 3.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

We've discovered 4 warning signs about Teneo AI. View them for free.

Check out our latest analysis for Teneo AI

What Does Teneo AI's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Teneo AI has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Teneo AI's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Teneo AI's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 33% last year. The latest three year period has also seen an excellent 114% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 40% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 18% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Teneo AI's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Teneo AI shares have taken a big step in a northerly direction, but its P/S is elevated as a result. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Teneo AI maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Teneo AI (1 can't be ignored!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Teneo AI, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.