Why Investors Shouldn't Be Surprised By Ovzon AB (publ)'s (STO:OVZON) 26% Share Price Surge

Despite an already strong run, Ovzon AB (publ) (STO:OVZON) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 95%.

Since its price has surged higher, you could be forgiven for thinking Ovzon is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 14.1x, considering almost half the companies in Sweden's Telecom industry have P/S ratios below 3x. 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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View our latest analysis for Ovzon

What Does Ovzon's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Ovzon has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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.

Is There Enough Revenue Growth Forecasted For Ovzon?

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 18% last year. The strong recent performance means it was also able to grow revenue by 38% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 122% during the coming year according to the two analysts following the company. That would be an excellent outcome when the industry is expected to decline by 3.5%.

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

The Key Takeaway

The strong share price surge has lead to Ovzon's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we anticipated, our review of Ovzon's analyst forecasts shows that the company's better revenue forecast compared to a turbulent industry is a significant contributor to its high price-to-sales ratio. Outperforming the industry in this manner looks to have provided investors with a bit of confidence that the future will be bright, bolstering the P/S. We still remain cautious about the company's ability to keep swimming against the current of the broader industry turmoil. Although, if the company's prospects don't change they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 1 warning sign for Ovzon that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.