Why Investors Shouldn't Be Surprised By Smart Eye AB (publ)'s (STO:SEYE) 25% Share Price Surge

Despite an already strong run, Smart Eye AB (publ) (STO:SEYE) shares have been powering on, with a gain of 25% in the last thirty days. The last month tops off a massive increase of 125% in the last year.

After such a large jump in price, given around half the companies in Sweden's Electronic industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Smart Eye as a stock to avoid entirely with its 11.2x 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.

See our latest analysis for Smart Eye

What Does Smart Eye's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Smart Eye has been doing relatively well. 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.

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.

Taking a look back first, we see that the company grew revenue by an impressive 41% 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.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 63% per year over the next three years. With the industry only predicted to deliver 8.2% per year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Smart Eye's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Smart Eye's P/S

Smart Eye's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into Smart Eye shows that its P/S ratio remains high on the merit of its strong future revenues. 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Smart Eye (of which 1 is significant!) you should know about.

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.