Twin Disc, Incorporated (NASDAQ:TWIN) Soars 40% But It's A Story Of Risk Vs Reward

Despite an already strong run, Twin Disc, Incorporated (NASDAQ:TWIN) shares have been powering on, with a gain of 40% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.0% in the last twelve months.

In spite of the firm bounce in price, Twin Disc's price-to-sales (or "P/S") ratio of 0.5x might still make it look like a buy right now compared to the Machinery industry in the United States, where around half of the companies have P/S ratios above 1.9x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for Twin Disc

How Has Twin Disc Performed Recently?

Recent times have been pleasing for Twin Disc as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting future revenue performance to follow the rest of the industry downwards, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Twin Disc.

Is There Any Revenue Growth Forecasted For Twin Disc?

Twin Disc's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 15% gain to the company's top line. The latest three year period has also seen an excellent 40% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 8.6% during the coming year according to the lone analyst following the company. With the industry only predicted to deliver 2.3%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Twin Disc's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What Does Twin Disc's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Twin Disc's P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Twin Disc's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Twin Disc with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Twin Disc, 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.