The Kingfish Company N.V.'s (OB:KING) Price Is Out Of Tune With Revenues

There wouldn't be many who think The Kingfish Company N.V.'s (OB:KING) price-to-sales (or "P/S") ratio of 2.4x is worth a mention when the median P/S for the Food industry in Norway is similar at about 2.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Kingfish

What Does Kingfish's Recent Performance Look Like?

Kingfish certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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Is There Some Revenue Growth Forecasted For Kingfish?

In order to justify its P/S ratio, Kingfish would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. The strong recent performance means it was also able to grow revenue by 167% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 39% over the next year. With the industry predicted to deliver 718% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Kingfish is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Kingfish's P/S

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.

Given that Kingfish's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Plus, you should also learn about these 4 warning signs we've spotted with Kingfish.

If these risks are making you reconsider your opinion on Kingfish, 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.