Aqua Bio Technology ASA (OB:ABTEC) Might Not Be As Mispriced As It Looks After Plunging 29%

Aqua Bio Technology ASA (OB:ABTEC) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 82% share price decline.

Following the heavy fall in price, Aqua Bio Technology may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.7x, considering almost half of all companies in the Chemicals industry in Norway have P/S ratios greater than 2.4x and even P/S higher than 21x aren't out of the ordinary. 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 Aqua Bio Technology

How Has Aqua Bio Technology Performed Recently?

Aqua Bio Technology certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. 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 out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Aqua Bio Technology will help you shine a light on its historical performance.

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 Aqua Bio Technology's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 42% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 55%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in mind, we find it intriguing that Aqua Bio Technology's P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Aqua Bio Technology's P/S?

Aqua Bio Technology's P/S has taken a dip along with its share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Aqua Bio Technology revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Aqua Bio Technology you should know about.

If you're unsure about the strength of Aqua Bio Technology'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.