Revenues Not Telling The Story For American Superconductor Corporation (NASDAQ:AMSC) After Shares Rise 28%

Despite an already strong run, American Superconductor Corporation (NASDAQ:AMSC) shares have been powering on, with a gain of 28% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

Since its price has surged higher, when almost half of the companies in the United States' Electrical industry have price-to-sales ratios (or "P/S") below 2.1x, you may consider American Superconductor as a stock not worth researching with its 6.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

View our latest analysis for American Superconductor

What Does American Superconductor's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, American Superconductor has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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.

How Is American Superconductor's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like American Superconductor's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 53%. The latest three year period has also seen an excellent 105% overall rise in revenue, aided 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 three analysts covering the company suggest revenue should grow by 16% per annum over the next three years. With the industry predicted to deliver 14% growth each year, the company is positioned for a comparable revenue result.

With this information, we find it interesting that American Superconductor is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Key Takeaway

Shares in American Superconductor have seen a strong upwards swing lately, which has really helped boost its P/S figure. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Analysts are forecasting American Superconductor's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 2 warning signs for American Superconductor that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.