American Superconductor Corporation's (NASDAQ:AMSC) 32% Jump Shows Its Popularity With Investors

American Superconductor Corporation (NASDAQ:AMSC) shares have continued their recent momentum with a 32% gain in the last month alone. The last month tops off a massive increase of 252% in the last year.

Since its price has surged higher, given around half the companies in the United States' Electrical industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider American Superconductor as a stock to avoid entirely with its 7.1x P/S ratio. 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 American Superconductor

What Does American Superconductor's Recent Performance Look Like?

Recent times have been advantageous for American Superconductor as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. 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 American Superconductor's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as American Superconductor's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 47% last year. Pleasingly, revenue has also lifted 80% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 31% during the coming year according to the three analysts following the company. With the industry only predicted to deliver 24%, the company is positioned for a stronger revenue result.

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

What We Can Learn From American Superconductor's P/S?

Shares in American Superconductor have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our look into American Superconductor shows that its P/S ratio remains high on the merit of its strong future revenues. 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.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for American Superconductor that you should be aware of.

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.