The Market Lifts Vow ASA (OB:VOW) Shares 28% But It Can Do More

Vow ASA (OB:VOW) shares have continued their recent momentum with a 28% gain in the last month alone. But the last month did very little to improve the 64% share price decline over the last year.

In spite of the firm bounce in price, Vow may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.7x, since almost half of all companies in the Commercial Services industry in Norway have P/S ratios greater than 8.5x and even P/S higher than 140x are not unusual. 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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Check out our latest analysis for Vow

How Has Vow Performed Recently?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Vow has been doing quite well of late. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. Those who are bullish on Vow will be hoping that this isn't the case and the company continues to beat out the industry.

Want the full picture on analyst estimates for the company? Then our free report on Vow will help you uncover what's on the horizon.

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

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

If we review the last year of revenue growth, the company posted a worthy increase of 13%. This was backed up an excellent period prior to see revenue up by 89% 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.

Looking ahead now, revenue is anticipated to climb by 32% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 15%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Vow's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Even after such a strong price move, Vow's P/S still trails the rest of the industry. 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.

To us, it seems Vow currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Vow (3 are concerning) 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.