Norse Atlantic ASA's (OB:NORSE) Popularity With Investors Under Threat As Stock Sinks 25%

The Norse Atlantic ASA (OB:NORSE) share price has fared very poorly over the last month, falling by a substantial 25%. Still, a bad month hasn't completely ruined the past year with the stock gaining 57%, which is great even in a bull market.

In spite of the heavy fall in price, there still wouldn't be many who think Norse Atlantic's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Norway's Airlines industry is similar at about 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for Norse Atlantic

What Does Norse Atlantic's P/S Mean For Shareholders?

Recent times have been advantageous for Norse Atlantic as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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Is There Some Revenue Growth Forecasted For Norse Atlantic?

In order to justify its P/S ratio, Norse Atlantic would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 25% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 1.8% per year as estimated by the one analyst watching the company. With the industry predicted to deliver 4.9% growth each year, that's a disappointing outcome.

With this information, we find it concerning that Norse Atlantic is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does Norse Atlantic's P/S Mean For Investors?

Following Norse Atlantic's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

It appears that Norse Atlantic currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

Before you settle on your opinion, we've discovered 3 warning signs for Norse Atlantic (1 makes us a bit uncomfortable!) that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.