Why Investors Shouldn't Be Surprised By Aker Horizons ASA's (OB:AKH) 31% Share Price Plunge

The Aker Horizons ASA (OB:AKH) share price has fared very poorly over the last month, falling by a substantial 31%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 62% loss during that time.

Since its price has dipped substantially, Aker Horizons' price-to-sales (or "P/S") ratio of 0.3x might 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 11.2x and even P/S above 125x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

View our latest analysis for Aker Horizons

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

With revenue growth that's exceedingly strong of late, Aker Horizons has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Aker Horizons will help you shine a light on its historical performance.

How Is Aker Horizons' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 33% last year. The latest three year period has also seen an excellent 264% 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 278% over the next year, materially higher than the company's recent medium-term annualised growth rates.

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

The Bottom Line On Aker Horizons' P/S

Having almost fallen off a cliff, Aker Horizons' share price has pulled its P/S way down as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

In line with expectations, Aker Horizons maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Plus, you should also learn about these 3 warning signs we've spotted with Aker Horizons (including 1 which is potentially serious).

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.