Ecoclime Group AB (publ) (NGM:ECC B) Might Not Be As Mispriced As It Looks After Plunging 45%

Ecoclime Group AB (publ) (NGM:ECC B) shareholders won't be pleased to see that the share price has had a very rough month, dropping 45% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 82% share price decline.

After such a large drop in price, considering around half the companies operating in Sweden's Building industry have price-to-sales ratios (or "P/S") above 1.2x, you may consider Ecoclime Group as an solid investment opportunity with its 0.1x P/S ratio. 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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Check out our latest analysis for Ecoclime Group

What Does Ecoclime Group's Recent Performance Look Like?

Ecoclime Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Is There Any Revenue Growth Forecasted For Ecoclime Group?

In order to justify its P/S ratio, Ecoclime Group would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 33%. As a result, revenue from three years ago have also fallen 23% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 48% over the next year. With the industry only predicted to deliver 2.8%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Ecoclime Group's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

The southerly movements of Ecoclime Group's shares means its P/S is now sitting at a pretty low level. 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.

Ecoclime Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Ecoclime Group (2 make us uncomfortable) you should be aware of.

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.