Slammed 32% SolTech Energy Sweden AB (publ) (STO:SOLT) Screens Well Here But There Might Be A Catch
To the annoyance of some shareholders, SolTech Energy Sweden AB (publ) (STO:SOLT) shares are down a considerable 32% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 91% share price decline.
Following the heavy fall in price, SolTech Energy Sweden may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Electrical industry in Sweden have P/S ratios greater than 2x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
View our latest analysis for SolTech Energy Sweden
How SolTech Energy Sweden Has Been Performing
For example, consider that SolTech Energy Sweden's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
Although there are no analyst estimates available for SolTech Energy Sweden, 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 Low P/S?
The only time you'd be truly comfortable seeing a P/S as low as SolTech Energy Sweden's is when the company's growth is on track to lag the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 25%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 27% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.
It's interesting to note that the rest of the industry is similarly expected to grow by 10% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.
With this information, we find it odd that SolTech Energy Sweden is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can maintain recent growth rates.
The Bottom Line On SolTech Energy Sweden's P/S
The southerly movements of SolTech Energy Sweden's shares means its P/S is now sitting at a pretty low level. 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.
The fact that SolTech Energy Sweden currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.
Plus, you should also learn about these 5 warning signs we've spotted with SolTech Energy Sweden (including 4 which can't be ignored).
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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