Despite an already strong run, American Superconductor Corporation (NASDAQ:AMSC) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 148% in the last year.
Since its price has surged higher, when almost half of the companies in the United States' Electrical industry have price-to-sales ratios (or "P/S") below 1.7x, you may consider American Superconductor as a stock not worth researching with its 3.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
NasdaqGS:AMSC Price to Sales Ratio vs Industry March 7th 2024
How Has American Superconductor Performed Recently?
Recent times have been advantageous for American Superconductor as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on American Superconductor will help you uncover what's on the horizon.
Is There Enough Revenue Growth Forecasted For American Superconductor?
In order to justify its P/S ratio, American Superconductor would need to produce outstanding growth that's well in excess of the industry.
Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 61% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 11% over the next year. With the industry predicted to deliver 10% growth , the company is positioned for a comparable revenue result.
With this information, we find it interesting that American Superconductor is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.
What Does American Superconductor's P/S Mean For Investors?
The strong share price surge has lead to American Superconductor's P/S soaring as well. 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.
Given American Superconductor's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
We don't want to rain on the parade too much, but we did also find 3 warning signs for American Superconductor that you need to be mindful of.
If these risks are making you reconsider your opinion on American Superconductor, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.