Norman Broadbent plc (LON:NBB) Stock's 29% Dive Might Signal An Opportunity But It Requires Some Scrutiny

To the annoyance of some shareholders, Norman Broadbent plc (LON:NBB) shares are down a considerable 29% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 32% in that time.

Although its price has dipped substantially, there still wouldn't be many who think Norman Broadbent's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in the United Kingdom's Professional Services industry is similar at about 0.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Norman Broadbent

How Has Norman Broadbent Performed Recently?

Norman Broadbent has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on Norman Broadbent will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Norman Broadbent will help you shine a light on its historical performance.

How Is Norman Broadbent's Revenue Growth Trending?

In order to justify its P/S ratio, Norman Broadbent would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.4% last year. Pleasingly, revenue has also lifted 74% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 5.6% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Norman Broadbent is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Norman Broadbent's P/S Mean For Investors?

Norman Broadbent's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

We've established that Norman Broadbent currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Norman Broadbent (of which 1 is a bit concerning!) you should know about.

If you're unsure about the strength of Norman Broadbent's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.