Digital Workforce Services Oyj (HEL:DWF)’s P/S is still strong after a 28% share price rise

Digital personnel services Oyj (HEL:DWF) Shareholders would be happy to see that the share price has had a great month, gaining 28% and recovering from previous weakness. Not all shareholders will be cheering, as the share price is still down a very disappointing 22% over the last twelve months.

Since the price has gone up and almost half of the companies operating in the Finnish IT industry have a price-to-sales ratio (or ‘P/S’) of less than 0.8x, you can think of Digital Workforce Services Oyj as a stock you might want to avoid. with a price/earnings ratio of 1.6x. Although it is not wise to take the P/S at face value as there may be an explanation as to why it is so high.

See our latest analysis for Digital Workforce Services Oyj

How Digital Workforce Services Oyj performed

Digital Workforce Services Oyj could do better, as revenue has been declining recently, while most other companies have seen positive revenue growth. Perhaps the market expects poor earnings to reverse, justifying the current high P/S. You’d really hope so, otherwise you’d be paying a pretty high price for no particular reason.

If you want to see what analysts are predicting for the future, check out our free report on digital human resources services Oyj.

What do the revenue growth figures tell us about the high P/S?

The only time you’ll really feel comfortable seeing a P/S as high as Digital Workforce Services Oyj’s is when the company’s growth is on track to outperform the industry.

When we looked at the financials last year, we were disheartened to see that the company’s revenues fell 1.3%. However, a few very strong years before that means the company was still able to grow revenue by an impressive 32% in total over the past three years. While it’s been a bumpy ride, we can still say that revenue growth has been more than sufficient for the company lately.

Looking ahead now, sales are expected to grow 12% annually over the next three years, according to the twin analysts who follow the company. With the sector expected to return just 4.4% per year, the company is positioned for stronger revenue performance.

In light of this, it’s understandable that Digital Workforce Services Oyj’s P/S rises above the majority of other companies. It seems most investors expect this strong future growth and are willing to pay more for the stock.

What does Digital Workforce Services Oyj’s P/S mean for investors?

The big rise in shares of Digital Workforce Services Oyj has significantly improved the company’s price-to-earnings ratio. While the price-to-sales ratio shouldn’t be the determining factor in whether or not you buy a stock, it is a good barometer of revenue expectations.

Our research on Digital Workforce Services Oyj shows that the P/S ratio remains high thanks to strong future earnings. At this point, shareholders are comfortable with the P/S as they are confident that future earnings are not at risk. It’s hard to see the share price falling sharply in the near future under these conditions.

Remember that there may be other risks. For example, we identified ourselves 2 warning signs for Digital Workforce Services Oyj that you should be aware of.

Naturally, profitable companies with a history of high profit growth tend to be safer. So you might want to see this free collection of other companies that have reasonable price-to-earnings ratios and have grown profits strongly.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.