Northcoders Group PLC (LON:CODE) Might Not Be As Mispriced As It Looks After Plunging 48%

Unfortunately for some shareholders, the Northcoders Group PLC (LON:CODE) share price has dived 48% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 61% share price decline.

Since its price has dipped substantially, given about half the companies operating in the United Kingdom's Consumer Services industry have price-to-sales ratios (or "P/S") above 2.1x, you may consider Northcoders Group as an attractive investment with its 0.6x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 2 warning signs investors should be aware of before investing in Northcoders Group. Read for free now.

View our latest analysis for Northcoders Group

What Does Northcoders Group's P/S Mean For Shareholders?

Recent times have been pleasing for Northcoders Group as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting future revenue performance to follow the rest of the industry downwards, which has kept the P/S suppressed. Those who are bullish on Northcoders Group will be hoping that this isn't the case and the company continues to beat out the industry.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Northcoders Group.

Do Revenue Forecasts Match The Low P/S Ratio?

Northcoders Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. Pleasingly, revenue has also lifted 193% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 7.7% during the coming year according to the only analyst following the company. That's shaping up to be materially higher than the 4.9% growth forecast for the broader industry.

In light of this, it's peculiar that Northcoders Group's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Northcoders Group's P/S?

Northcoders Group's recently weak share price has pulled its P/S back below other Consumer Services companies. 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.

Northcoders Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for Northcoders Group that you need to take into consideration.

If you're unsure about the strength of Northcoders Group'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.