Market Participants Recognise Ovzon AB (publ)'s (STO:OVZON) Revenues

Ovzon AB (publ)'s (STO:OVZON) price-to-sales (or "P/S") ratio of 6.1x may look like a poor investment opportunity when you consider close to half the companies in the Telecom industry in Sweden have P/S ratios below 1.9x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Ovzon

What Does Ovzon's Recent Performance Look Like?

Recent times have been advantageous for Ovzon as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

Ovzon's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 73% last year. Pleasingly, revenue has also lifted 67% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue growth will be highly resilient over the next year growing by 48%. That would be an excellent outcome when the industry is expected to decline by 6.3%.

With this in consideration, we understand why Ovzon's P/S is a cut above its industry peers. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader industry going backwards.

The Key Takeaway

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.

As we suspected, our examination of Ovzon's analyst forecasts revealed that its superior revenue outlook against a shaky industry is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenue is remote enough to justify paying a premium in the form of a high P/S. We still remain cautious about the company's ability to keep swimming against the current of the broader industry turmoil. Otherwise, it's hard to see the share price falling strongly in the near future under the current growth expectations.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Ovzon with six simple checks on some of these key factors.

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