What You Can Learn From ADS-TEC Energy PLC's (NASDAQ:ADSE) P/S

ADS-TEC Energy PLC's (NASDAQ:ADSE) price-to-sales (or "P/S") ratio of 4.6x may look like a poor investment opportunity when you consider close to half the companies in the Electrical industry in the United States have P/S ratios below 1.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for ADS-TEC Energy

What Does ADS-TEC Energy's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, ADS-TEC Energy has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is ADS-TEC Energy's Revenue Growth Trending?

ADS-TEC Energy'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 168% last year. The latest three year period has also seen an excellent 124% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 30% over the next year. With the industry only predicted to deliver 8.3%, the company is positioned for a stronger revenue result.

With this information, we can see why ADS-TEC Energy is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From ADS-TEC Energy's P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of ADS-TEC Energy's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with ADS-TEC Energy.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.