Take Care Before Diving Into The Deep End On Grieg Seafood ASA (OB:GSF)

With a price-to-sales (or "P/S") ratio of 1.2x Grieg Seafood ASA (OB:GSF) may be sending bullish signals at the moment, given that almost half of all the Food companies in Norway have P/S ratios greater than 2.3x and even P/S higher than 7x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Grieg Seafood

What Does Grieg Seafood's P/S Mean For Shareholders?

Grieg Seafood could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is Grieg Seafood's Revenue Growth Trending?

Grieg Seafood's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

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 4.3%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 65% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 13% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 12% each year, which is not materially different.

With this information, we find it odd that Grieg Seafood is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've seen that Grieg Seafood currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Grieg Seafood (1 is potentially serious!) that you should be aware of.

If these risks are making you reconsider your opinion on Grieg Seafood, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.