Take Care Before Diving Into The Deep End On InCoax Networks AB (publ) (STO:INCOAX)

With a median price-to-sales (or "P/S") ratio of close to 1.6x in the Communications industry in Sweden, you could be forgiven for feeling indifferent about InCoax Networks AB (publ)'s (STO:INCOAX) P/S ratio, which comes in at about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for InCoax Networks

What Does InCoax Networks' Recent Performance Look Like?

InCoax Networks certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on InCoax Networks.

Is There Some Revenue Growth Forecasted For InCoax Networks?

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

Taking a look back first, we see that the company grew revenue by an impressive 52% last year. The strong recent performance means it was also able to grow revenue by 199% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 1,299% over the next year. That's shaping up to be materially higher than the 6.2% growth forecast for the broader industry.

In light of this, it's curious that InCoax Networks' P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On InCoax Networks' P/S

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.

We've established that InCoax Networks currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for InCoax Networks (1 shouldn't be ignored!) that you should be aware of before investing here.

If you're unsure about the strength of InCoax Networks' 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.