Lerøy Seafood Group ASA's (OB:LSG) Prospects Need A Boost To Lift Shares

When you see that almost half of the companies in the Food industry in Norway have price-to-sales ratios (or "P/S") above 2.2x, Lerøy Seafood Group ASA (OB:LSG) looks to be giving off some buy signals with its 0.9x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Lerøy Seafood Group

How Lerøy Seafood Group Has Been Performing

Lerøy Seafood Group's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Lerøy Seafood Group's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Although pleasingly revenue has lifted 35% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 4.7% each year over the next three years. That's shaping up to be materially lower than the 264% per annum growth forecast for the broader industry.

With this information, we can see why Lerøy Seafood Group is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Lerøy Seafood Group'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.

As we suspected, our examination of Lerøy Seafood Group's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Lerøy Seafood Group that 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.