Subdued Growth No Barrier To Polimex-Mostostal S.A. (WSE:PXM) With Shares Advancing 29%
Polimex-Mostostal S.A. (WSE:PXM) shares have continued their recent momentum with a 29% gain in the last month alone. The annual gain comes to 279% following the latest surge, making investors sit up and take notice.
Although its price has surged higher, there still wouldn't be many who think Polimex-Mostostal's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when it essentially matches the median P/S in Poland's Construction industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
See our latest analysis for Polimex-Mostostal
What Does Polimex-Mostostal's P/S Mean For Shareholders?
With revenue growth that's exceedingly strong of late, Polimex-Mostostal has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
Although there are no analyst estimates available for Polimex-Mostostal, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.What Are Revenue Growth Metrics Telling Us About The P/S?
The only time you'd be comfortable seeing a P/S like Polimex-Mostostal's is when the company's growth is tracking the industry closely.
If we review the last year of revenue growth, the company posted a terrific increase of 61%. Revenue has also lifted 11% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
This is in contrast to the rest of the industry, which is expected to grow by 20% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's curious that Polimex-Mostostal's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
The Bottom Line On Polimex-Mostostal's P/S
Polimex-Mostostal appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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 Polimex-Mostostal's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.
You should always think about risks. Case in point, we've spotted 1 warning sign for Polimex-Mostostal 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.