The Market Lifts Waystream Holding AB (publ) (STO:WAYS) Shares 26% But It Can Do More

Waystream Holding AB (publ) (STO:WAYS) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The annual gain comes to 146% 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 Waystream Holding's price-to-sales (or "P/S") ratio of 2.4x is worth a mention when it essentially matches the median P/S in Sweden's Communications industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Check out our latest analysis for Waystream Holding

What Does Waystream Holding's P/S Mean For Shareholders?

Waystream Holding certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. Those who are bullish on Waystream Holding will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

Keen to find out how analysts think Waystream Holding's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Waystream Holding's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. The latest three year period has also seen a 11% 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.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 15% over the next year. That's shaping up to be materially higher than the 0.08% growth forecast for the broader industry.

With this information, we find it interesting that Waystream Holding is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Its shares have lifted substantially and now Waystream Holding's P/S is back within range of 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.

We've established that Waystream Holding currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you settle on your opinion, we've discovered 1 warning sign for Waystream Holding that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.