Not Many Are Piling Into Nordic Unmanned ASA (OB:NUMND) Stock Yet As It Plummets 50%

The Nordic Unmanned ASA (OB:NUMND) share price has fared very poorly over the last month, falling by a substantial 50%. For any long-term shareholders, the last month ends a year to forget by locking in a 96% share price decline.

After such a large drop in price, it would be understandable if you think Nordic Unmanned is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.2x, considering almost half the companies in Norway's Aerospace & Defense industry have P/S ratios above 1.6x. 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

What Does Nordic Unmanned's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Nordic Unmanned over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. 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 out of favour.

Although there are no analyst estimates available for Nordic Unmanned, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Nordic Unmanned's Revenue Growth Trending?

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.

Comparing that to the industry, which is only predicted to deliver 16% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that Nordic Unmanned is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

The southerly movements of Nordic Unmanned's shares means its P/S is now sitting at a pretty low level. 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.

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 robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Nordic Unmanned, and understanding them should be part of your investment process.

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.