More Unpleasant Surprises Could Be In Store For Sosandar Plc's (LON:SOS) Shares After Tumbling 27%

Unfortunately for some shareholders, the Sosandar Plc (LON:SOS) share price has dived 27% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 65% loss during that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Sosandar's P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Luxury industry in the United Kingdom is also close to 0.7x. 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 Sosandar

What Does Sosandar's P/S Mean For Shareholders?

Recent times have been pleasing for Sosandar as its revenue has risen in spite of the industry's average revenue going into reverse. One possibility is that the P/S ratio is moderate because investors think the company's revenue will be less resilient moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Keen to find out how analysts think Sosandar's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

Sosandar's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 9.0%. The latest three year period has also seen an excellent 280% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 1.5% as estimated by the sole analyst watching the company. Meanwhile, the broader industry is forecast to expand by 7.6%, which paints a poor picture.

In light of this, it's somewhat alarming that Sosandar's P/S sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Final Word

With its share price dropping off a cliff, the P/S for Sosandar looks to be in line with the rest of the Luxury industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our check of Sosandar's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Sosandar you should know about.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com