ADS-TEC Energy PLC (NASDAQ:ADSE) shares have continued their recent momentum with a 30% gain in the last month alone. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.
Following the firm bounce in price, when almost half of the companies in the United States' Electrical industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider ADS-TEC Energy as a stock not worth researching with its 13.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
How Has ADS-TEC Energy Performed Recently?
ADS-TEC Energy could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. 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 ADS-TEC Energy.
Do Revenue Forecasts Match The High P/S Ratio?
ADS-TEC Energy'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.
Retrospectively, the last year delivered a frustrating 20% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 38% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.
Looking ahead now, revenue is anticipated to climb by 110% per year during the coming three years according to the four analysts following the company. With the industry only predicted to deliver 63% per year, the company is positioned for a stronger revenue result.
With this information, we can see why ADS-TEC Energy 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.
The Bottom Line On ADS-TEC Energy's P/S
ADS-TEC Energy's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
Our look into ADS-TEC Energy shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
You should always think about risks. Case in point, we've spotted 2 warning signs for ADS-TEC Energy 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.