Ovzon AB (publ) (STO:OVZON) Looks Just Right With A 63% Price Jump

Despite an already strong run, Ovzon AB (publ) (STO:OVZON) shares have been powering on, with a gain of 63% in the last thirty days. The last month tops off a massive increase of 107% in the last year.

After such a large jump in price, when almost half of the companies in Sweden's Telecom industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Ovzon as a stock not worth researching with its 9.1x P/S ratio. 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.

See our latest analysis for Ovzon

How Has Ovzon Performed Recently?

Recent times have been advantageous for Ovzon as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Ovzon will help you uncover what's on the horizon.

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

In order to justify its P/S ratio, Ovzon would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. The latest three year period has also seen an excellent 71% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 24% each year as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 2.3% each year, which is noticeably less attractive.

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

The Final Word

The strong share price surge has lead to Ovzon'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 Ovzon maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Telecom industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Ovzon you should be aware of.

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.