Unfortunately for some shareholders, the Polestar Automotive Holding UK PLC (NASDAQ:PSNY) share price has dived 25% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 64% share price decline.
After such a large drop in price, Polestar Automotive Holding UK may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.9x, since almost half of all companies in the Auto industry in the United States have P/S ratios greater than 1.8x and even P/S higher than 12x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
NasdaqGM:PSNY Price to Sales Ratio vs Industry April 25th 2024
What Does Polestar Automotive Holding UK's P/S Mean For Shareholders?
Recent times have been advantageous for Polestar Automotive Holding UK as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Keen to find out how analysts think Polestar Automotive Holding UK'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 Low P/S?
The only time you'd be truly comfortable seeing a P/S as low as Polestar Automotive Holding UK's is when the company's growth is on track to lag the industry.
Taking a look back first, we see that the company grew revenue by an impressive 37% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 62% per annum as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 22% each year growth forecast for the broader industry.
With this in consideration, we find it intriguing that Polestar Automotive Holding UK's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
What Does Polestar Automotive Holding UK's P/S Mean For Investors?
Polestar Automotive Holding UK's P/S has taken a dip along with its share price. 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.
To us, it seems Polestar Automotive Holding UK currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.
Having said that, be aware Polestar Automotive Holding UK is showing 4 warning signs in our investment analysis, and 2 of those make us uncomfortable.
If these risks are making you reconsider your opinion on Polestar Automotive Holding UK, 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.