After Leaping 37% Lumi Gruppen AS (OB:LUMI) Shares Are Not Flying Under The Radar

Lumi Gruppen AS (OB:LUMI) shares have continued their recent momentum with a 37% gain in the last month alone. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.1% in the last twelve months.

Following the firm bounce in price, you could be forgiven for thinking Lumi Gruppen is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.8x, considering almost half the companies in Norway's Consumer Services industry have P/S ratios below 0.9x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Lumi Gruppen

What Does Lumi Gruppen's P/S Mean For Shareholders?

Lumi Gruppen has been struggling lately as its revenue has declined faster than most other companies. One possibility is that the P/S ratio is high because investors think the company will turn things around completely and accelerate past most others in the industry. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Lumi Gruppen.

Is There Enough Revenue Growth Forecasted For Lumi Gruppen?

In order to justify its P/S ratio, Lumi Gruppen would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 8.0% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 21% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 11% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 4.2% growth forecast for the broader industry.

With this information, we can see why Lumi Gruppen is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Lumi Gruppen shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

We've established that Lumi Gruppen maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Consumer Services industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Lumi Gruppen (1 is significant) you should be aware of.

If you're unsure about the strength of Lumi Gruppen's 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.