Why Investors Shouldn't Be Surprised By American Superconductor Corporation's (NASDAQ:AMSC) 34% Share Price Surge

American Superconductor Corporation (NASDAQ:AMSC) shareholders are no doubt pleased to see that the share price has bounced 34% in the last month, although it is still struggling to make up recently lost ground. The last 30 days bring the annual gain to a very sharp 55%.

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 1.7x, you may consider American Superconductor as a stock not worth researching with its 4.3x 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.

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What Does American Superconductor's P/S Mean For Shareholders?

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. If not, then existing shareholders might be a little nervous about the viability of the share price.

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Do Revenue Forecasts Match The High P/S Ratio?

American Superconductor'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.

If we review the last year of revenue growth, the company posted a terrific increase of 46%. The strong recent performance means it was also able to grow revenue by 96% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 18% per annum during the coming three years according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 15% per year, which is noticeably less attractive.

In light of this, it's understandable that American Superconductor's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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

We've established that American Superconductor maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electrical industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for American Superconductor that you should be aware of.

If you're unsure about the strength of American Superconductor's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.