Aqua Bio Technology ASA (OB:ABTEC) Stock Rockets 40% But Many Are Still Ignoring The Company

Those holding Aqua Bio Technology ASA (OB:ABTEC) shares would be relieved that the share price has rebounded 40% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 81% share price decline over the last year.

In spite of the firm bounce in price, Aqua Bio Technology's price-to-sales (or "P/S") ratio of 0.8x might still make it look like a buy right now compared to the Chemicals industry in Norway, where around half of the companies have P/S ratios above 2.6x and even P/S above 55x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

We've discovered 5 warning signs about Aqua Bio Technology. View them for free.

Check out 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. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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.

Do Revenue Forecasts Match The Low P/S Ratio?

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 explosive gain to the company's top line. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 27%, 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. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Aqua Bio Technology's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Aqua Bio Technology's P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We're very surprised to see Aqua Bio Technology currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Aqua Bio Technology (at least 4 which are a bit concerning), and understanding them should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.