Gigasun AB (publ)'s (STO:GIGA) Share Price Boosted 33% But Its Business Prospects Need A Lift Too

Gigasun AB (publ) (STO:GIGA) shares have had a really impressive month, gaining 33% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 58% share price drop in the last twelve months.

Even after such a large jump in price, Gigasun may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Renewable Energy industry in Sweden have P/S ratios greater than 3.4x and even P/S higher than 6x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Gigasun

How Gigasun Has Been Performing

With revenue growth that's inferior to most other companies of late, Gigasun has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Gigasun would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a decent 8.8% gain to the company's revenues. The latest three year period has also seen an excellent 86% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 46% over the next year. With the industry predicted to deliver 294% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Gigasun is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Shares in Gigasun have risen appreciably however, its P/S is still subdued. 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 Gigasun's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Gigasun that you should be aware of.

If these risks are making you reconsider your opinion on Gigasun, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.