Take Care Before Diving Into The Deep End On FlexQube AB (publ) (STO:FLEXQ)

You may think that with a price-to-sales (or "P/S") ratio of 0.8x FlexQube AB (publ) (STO:FLEXQ) is a stock worth checking out, seeing as almost half of all the Machinery companies in Sweden have P/S ratios greater than 1.6x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Our free stock report includes 3 warning signs investors should be aware of before investing in FlexQube. Read for free now.

View our latest analysis for FlexQube

What Does FlexQube's Recent Performance Look Like?

The revenue growth achieved at FlexQube over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For FlexQube?

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

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Revenue has also lifted 16% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 1.0% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that FlexQube is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We're very surprised to see FlexQube 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for FlexQube (1 shouldn't be ignored!) that you need to be mindful of.

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.