Smart Eye AB (publ)'s (STO:SEYE) 27% Cheaper Price Remains In Tune With Revenues

The Smart Eye AB (publ) (STO:SEYE) share price has fared very poorly over the last month, falling by a substantial 27%. Looking at the bigger picture, even after this poor month the stock is up 52% in the last year.

In spite of the heavy fall in price, when almost half of the companies in Sweden's Electronic industry have price-to-sales ratios (or "P/S") below 1.5x, you may still consider Smart Eye as a stock not worth researching with its 8.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Smart Eye

How Smart Eye Has Been Performing

With revenue growth that's superior to most other companies of late, Smart Eye has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Smart Eye's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 44%. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 46% during the coming year according to the dual analysts following the company. With the industry only predicted to deliver 6.7%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Smart Eye'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.

What We Can Learn From Smart Eye's P/S?

A significant share price dive has done very little to deflate Smart Eye's very lofty P/S. 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.

Our look into Smart Eye shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Smart Eye (1 makes us a bit uncomfortable!) that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.