Investors Give Saxlund Group AB (publ) (STO:SAXG) Shares A 27% Hiding

To the annoyance of some shareholders, Saxlund Group AB (publ) (STO:SAXG) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 92% loss during that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Saxlund Group's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in Sweden is also close to 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Saxlund Group

How Has Saxlund Group Performed Recently?

Recent times have been quite advantageous for Saxlund Group as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Saxlund Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Saxlund Group's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Saxlund Group's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 34% last year. Pleasingly, revenue has also lifted 50% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 4.6%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Saxlund Group is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Saxlund Group's P/S?

Saxlund Group's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

To our surprise, Saxlund Group revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

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