Benign Growth For BEWi ASA (OB:BEWI) Underpins Stock's 25% Plummet

BEWi ASA (OB:BEWI) shares have had a horrible month, losing 25% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 41% in that time.

Since its price has dipped substantially, BEWi's price-to-sales (or "P/S") ratio of 0.4x might make it look like a strong buy right now compared to the wider Chemicals industry in Norway, where around half of the companies have P/S ratios above 4.9x and even P/S above 23x 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 so limited.

Check out our latest analysis for BEWi

What Does BEWi's Recent Performance Look Like?

Recent times have been more advantageous for BEWi as its revenue hasn't fallen as much as the rest of the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. But at the very least, you'd be hoping that revenue doesn't fall off a cliff completely if your plan is to pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on BEWi.

How Is BEWi's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as BEWi's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 5.7% decrease to the company's top line. Even so, admirably revenue has lifted 108% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 6.1% as estimated by the three analysts watching the company. With the industry predicted to deliver 42% growth, the company is positioned for a weaker revenue result.

With this information, we can see why BEWi is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Having almost fallen off a cliff, BEWi's share price has pulled its P/S way down as well. 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.

As expected, our analysis of BEWi's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for BEWi you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com