Investors Give Icelandair Group hf. (ICE:ICEAIR) Shares A 27% Hiding

The Icelandair Group hf. (ICE:ICEAIR) share price has fared very poorly over the last month, falling by a substantial 27%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 23% in that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Icelandair Group hf's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Airlines industry in Iceland is also close to 0.4x. 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.

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See our latest analysis for Icelandair Group hf

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

Revenue has risen firmly for Icelandair Group hf recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Icelandair Group hf's earnings, revenue and cash flow.

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like Icelandair Group hf's to be considered reasonable.

Retrospectively, the last year delivered a decent 9.5% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 45% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 4.5% shows it's noticeably more attractive.

In light of this, it's curious that Icelandair Group hf's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Following Icelandair Group hf's share price tumble, its P/S is just clinging on to the industry median P/S. 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 didn't quite envision Icelandair Group hf's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. 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 1 warning sign for Icelandair Group hf you should know about.

If you're unsure about the strength of Icelandair Group hf'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.