Optimistic Investors Push Strattec Security Corporation (NASDAQ:STRT) Shares Up 29% But Growth Is Lacking

Strattec Security Corporation (NASDAQ:STRT) shareholders have had their patience rewarded with a 29% share price jump in the last month. The last month tops off a massive increase of 101% in the last year.

Although its price has surged higher, there still wouldn't be many who think Strattec Security's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in the United States' Auto Components industry is similar at about 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Strattec Security

How Has Strattec Security Performed Recently?

Strattec Security certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained. Those who are bullish on Strattec Security will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

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

Is There Some Revenue Growth Forecasted For Strattec Security?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Strattec Security's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 7.7%. The latest three year period has also seen a 24% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 1.5% over the next year. That's shaping up to be materially lower than the 18% growth forecast for the broader industry.

With this in mind, we find it intriguing that Strattec Security's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Strattec Security's P/S?

Strattec Security appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

When you consider that Strattec Security's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Strattec Security with six simple checks.

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