More Unpleasant Surprises Could Be In Store For Kaldvik AS' (OB:KLDVK) Shares After Tumbling 26%

To the annoyance of some shareholders, Kaldvik AS (OB:KLDVK) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 30% share price drop.

In spite of the heavy fall in price, there still wouldn't be many who think Kaldvik's price-to-sales (or "P/S") ratio of 1.8x is worth a mention when the median P/S in Norway's Food industry is similar at about 1.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for Kaldvik

How Has Kaldvik Performed Recently?

With revenue growth that's superior to most other companies of late, Kaldvik has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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Is There Some Revenue Growth Forecasted For Kaldvik?

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

Retrospectively, the last year delivered an exceptional 219% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 205% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 34% per annum as estimated by the dual analysts watching the company. With the industry predicted to deliver 259% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's curious that Kaldvik's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

Following Kaldvik's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Given that Kaldvik'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. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 1 warning sign for Kaldvik you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.