Investors Give Nordic Unmanned ASA (OB:NUMND) Shares A 43% Hiding

To the annoyance of some shareholders, Nordic Unmanned ASA (OB:NUMND) shares are down a considerable 43% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 96% loss during that time.

After such a large drop in price, given about half the companies operating in Norway's Aerospace & Defense industry have price-to-sales ratios (or "P/S") above 1.6x, you may consider Nordic Unmanned as an attractive investment with its 0.2x 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 Nordic Unmanned

How Has Nordic Unmanned Performed Recently?

As an illustration, revenue has deteriorated at Nordic Unmanned over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Nordic Unmanned 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 Nordic Unmanned will help you shine a light on its historical performance.

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Nordic Unmanned's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.9%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 77% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

When compared to the industry's one-year growth forecast of 15%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it odd that Nordic Unmanned is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What Does Nordic Unmanned's P/S Mean For Investors?

Nordic Unmanned's P/S has taken a dip along with its share price. 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.

Our examination of Nordic Unmanned revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Nordic Unmanned that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.