Aqua Bio Technology ASA (OB:ABTEC) Stock's 54% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The Aqua Bio Technology ASA (OB:ABTEC) share price has softened a substantial 54% over the previous 30 days, handing back much of the gains the stock has made lately. For any long-term shareholders, the last month ends a year to forget by locking in a 77% share price decline.

Following the heavy fall in price, Aqua Bio Technology's price-to-sales (or "P/S") ratio of 0.9x might 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 2.5x and even P/S above 52x 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.

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View our latest analysis for Aqua Bio Technology

How Has Aqua Bio Technology Performed Recently?

Recent times have been quite advantageous for Aqua Bio Technology as its revenue has been rising very briskly. 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 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.

Although there are no analyst estimates available for Aqua Bio Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Aqua Bio Technology's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an explosive gain to the company's top line. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 33% shows it's noticeably more attractive.

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.

The Bottom Line On Aqua Bio Technology's P/S

Aqua Bio Technology's P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. 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.

Before you take the next step, you should know about the 5 warning signs for Aqua Bio Technology (4 make us uncomfortable!) that we have uncovered.

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.