FOM Technologies A/S (CPH:FOM) has a price-to-sales multiple (P/S) of 2.1x, which may not seem like an attractive investment opportunity given that nearly half of the companies in the Danish machinery industry have a P/S multiple of less than 1. However, there may be a reason for the high P/S, and further investigation is needed to determine if it is justified.
Read our latest analysis for FOM Technologies
CPSE:FOM Industry Sales Price Ratio August 17, 2024
FOM Technologies Performance
FOM Technologies has been performing very well recently, with revenue growth being very strong. It seems that many are expecting the company’s strong earnings performance to outperform most other companies in the coming period. This has made investors more willing to pay a premium for the company’s shares. However, if that doesn’t happen, investors may end up overpaying for the company’s shares.
There are no analyst forecasts for FOM Technologies, but you can take a look at this free data-rich visualization to see the company’s earnings, revenue and cash flow picture.
Does FOM Technologies have sufficient revenue growth forecast?
FOM Technologies’ P/S ratio is typical for a company that is expected to experience robust growth and, more importantly, outperform its industry.
Looking back, we can see that the company grew its revenue by 45% last year, and the last three years have seen incredible growth in overall revenue, buoyed by incredible short-term growth, so the first thing to note is that the company has achieved significant revenue growth over this period.
Comparing the recent medium-term earnings trajectory with the industry’s one-year growth forecast of 4.4% shows that it’s clearly attractive.
With this in mind, it’s not hard to see why FOM Technologies’ P/S is high relative to its peers – perhaps shareholders aren’t keen to sell something they believe will continue to outperform the wider industry.
What can we learn from FOM Technologies’ P/S?
While it has been argued that price-to-sales is a poor measure of value in certain industries, it can be a powerful indicator of economic sentiment.
As expected, research from FOM Technologies reveals that the company’s three-year earnings trend is better than current industry expectations, contributing to the high P/S. At this point, investors feel that the potential for continued future earnings growth is large enough to justify a higher P/S. As long as recent medium-term conditions remain unchanged, these conditions will continue to provide strong support for the stock.
There is always a shadow of investment risk to consider, and we’ve identified 5 warning signs with FOM Technologies (at least 1 which can’t be ignored) , and understanding these should be part of your investment process.
If these risks have you reconsidering your opinion on FOM Technologies, check out our interactive list of high quality stocks to see what other stocks are out there.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.