Goodtech ASA's (OB:GOD) 26% Dip In Price Shows Sentiment Is Matching Revenues

The Goodtech ASA (OB:GOD) share price has fared very poorly over the last month, falling by a substantial 26%. The recent drop has obliterated the annual return, with the share price now down 9.9% over that longer period.

Although its price has dipped substantially, when close to half the companies operating in Norway's Machinery industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider Goodtech as an enticing stock to check out with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Goodtech

What Does Goodtech's Recent Performance Look Like?

Goodtech's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on Goodtech will be hoping that this isn't the case.

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

How Is Goodtech's Revenue Growth Trending?

In order to justify its P/S ratio, Goodtech would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.5% last year. This was backed up an excellent period prior to see revenue up by 51% 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.

Turning to the outlook, the next three years should generate growth of 3.5% each year as estimated by the sole analyst watching the company. With the industry predicted to deliver 14% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Goodtech's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Goodtech's recently weak share price has pulled its P/S back below other Machinery companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of Goodtech's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Goodtech has 1 warning sign we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.