Market Might Still Lack Some Conviction On Aker Horizons ASA (OB:AKH) Even After 32% Share Price Boost

Despite an already strong run, Aker Horizons ASA (OB:AKH) shares have been powering on, with a gain of 32% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 12% in the last twelve months.

Although its price has surged higher, Aker Horizons' price-to-sales (or "P/S") ratio of 0.6x might still make it look like a strong buy right now compared to the wider Commercial Services industry in Norway, where around half of the companies have P/S ratios above 9.2x and even P/S above 38x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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See our latest analysis for Aker Horizons

What Does Aker Horizons' P/S Mean For Shareholders?

Aker Horizons certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Aker Horizons will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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How Is Aker Horizons' Revenue Growth Trending?

In order to justify its P/S ratio, Aker Horizons would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 148% last year. The latest three year period has also seen an excellent 36% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 8.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Aker Horizons' P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What Does Aker Horizons' P/S Mean For Investors?

Aker Horizons' recent share price jump still sees fails to bring its P/S alongside the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Aker Horizons 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. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Aker Horizons is showing 2 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Aker Horizons' 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.