Positive Sentiment Still Eludes SolTech Energy Sweden AB (publ) (STO:SOLT) Following 25% Share Price Slump

To the annoyance of some shareholders, SolTech Energy Sweden AB (publ) (STO:SOLT) shares are down a considerable 25% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 73% share price decline.

Since its price has dipped substantially, SolTech Energy Sweden's price-to-sales (or "P/S") ratio of 0.1x might make it look like a buy right now compared to the Electrical industry in Sweden, where around half of the companies have P/S ratios above 1.4x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for SolTech Energy Sweden

How Has SolTech Energy Sweden Performed Recently?

For example, consider that SolTech Energy Sweden's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. Those who are bullish on SolTech Energy Sweden will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on SolTech Energy Sweden's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For SolTech Energy Sweden?

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

Retrospectively, the last year delivered a frustrating 7.6% decrease to the company's top line. Even so, admirably revenue has lifted 241% 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.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 22% shows it's noticeably more attractive.

With this in mind, we find it intriguing that SolTech Energy Sweden'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 Final Word

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

You should always think about risks. Case in point, we've spotted 3 warning signs for SolTech Energy Sweden you should be aware of, and 1 of them doesn't sit too well with us.

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.