AS Pro Kapital Grupp's (TAL:PKG1T) Shares Climb 54% But Its Business Is Yet to Catch Up

The AS Pro Kapital Grupp (TAL:PKG1T) share price has done very well over the last month, posting an excellent gain of 54%. Looking back a bit further, it's encouraging to see the stock is up 29% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that AS Pro Kapital Grupp's price-to-sales (or "P/S") ratio of 5x right now seems quite "middle-of-the-road" compared to the Real Estate industry in Estonia, where the median P/S ratio is around 4.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for AS Pro Kapital Grupp

What Does AS Pro Kapital Grupp's P/S Mean For Shareholders?

For instance, AS Pro Kapital Grupp's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for AS Pro Kapital Grupp, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

The only time you'd be comfortable seeing a P/S like AS Pro Kapital Grupp's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 43% decrease to the company's top line. As a result, revenue from three years ago have also fallen 44% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to shrink 7.5% in the next 12 months, the company's downward momentum is still inferior based on recent medium-term annualised revenue results.

In light of this, it's somewhat peculiar that AS Pro Kapital Grupp's P/S sits in line with the majority of other companies. In general, when revenue shrink rapidly the P/S often shrinks too, which could set up shareholders for future disappointment. There's potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

What Does AS Pro Kapital Grupp's P/S Mean For Investors?

Its shares have lifted substantially and now AS Pro Kapital Grupp's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that AS Pro Kapital Grupp currently trades on a higher than expected P/S since its recent three-year revenues are even worse than the forecasts for a struggling industry. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. We're also cautious about the company's ability to stay its recent medium-term course and resist even greater pain to its business from the broader industry turmoil. This would place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider and we've discovered 3 warning signs for AS Pro Kapital Grupp (2 are a bit concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on AS Pro Kapital Grupp, 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.