Smart Eye AB (publ)'s (STO:SEYE) P/S Is Still On The Mark Following 26% Share Price Bounce

The Smart Eye AB (publ) (STO:SEYE) share price has done very well over the last month, posting an excellent gain of 26%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 30% over that time.

Following the firm bounce in price, given around half the companies in Sweden's Electronic industry have price-to-sales ratios (or "P/S") below 2.2x, you may consider Smart Eye as a stock to avoid entirely with its 6x 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.

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Check out 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. 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.

How Is Smart Eye's Revenue Growth Trending?

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.

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. Pleasingly, revenue has also lifted 224% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 49% each year over the next three years. That's shaping up to be materially higher than the 8.1% per year growth forecast for the broader industry.

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

Shares in Smart Eye have seen a strong upwards swing lately, which has really helped boost its P/S figure. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Smart Eye's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Smart Eye (1 is a bit unpleasant!) that you should be aware of.

If these risks are making you reconsider your opinion on Smart Eye, 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.