Smart Eye AB (publ)'s (STO:SEYE) P/S Is Still On The Mark Following 28% Share Price Bounce

Despite an already strong run, Smart Eye AB (publ) (STO:SEYE) shares have been powering on, with a gain of 28% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 91% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Smart Eye is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 11.4x, considering almost half the companies in Sweden's Electronic industry have P/S ratios below 1.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Smart Eye

How Has Smart Eye Performed Recently?

Recent times have been advantageous for Smart Eye as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is Smart Eye's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Smart Eye's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 38% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 59% per annum as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 8.2% per year, which is noticeably less attractive.

With this information, we can see why Smart Eye is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Smart Eye's P/S Mean For Investors?

The strong share price surge has lead to Smart Eye's P/S soaring as well. 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 Smart Eye maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electronic industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for Smart Eye that you should be aware of.

If you're unsure about the strength of Smart Eye'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.