After Leaping 53% Fuel Tech, Inc. (NASDAQ:FTEK) Shares Are Not Flying Under The Radar

Despite an already strong run, Fuel Tech, Inc. (NASDAQ:FTEK) shares have been powering on, with a gain of 53% in the last thirty days. The last month tops off a massive increase of 148% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Fuel Tech is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.1x, considering almost half the companies in the United States' Commercial Services industry have P/S ratios below 1.5x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Fuel Tech

How Fuel Tech Has Been Performing

There hasn't been much to differentiate Fuel Tech's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

Fuel Tech's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a decent 7.3% gain to the company's revenues. The latest three year period has also seen a 7.2% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 17% per annum as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 7.5% each year growth forecast for the broader industry.

With this information, we can see why Fuel Tech is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Fuel Tech's P/S Mean For Investors?

Fuel Tech shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Fuel Tech maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Commercial Services industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for Fuel Tech that we have uncovered.

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.