Potential Upside For SECITS Holding AB (publ) (STO:SECI) Not Without Risk

There wouldn't be many who think SECITS Holding AB (publ)'s (STO:SECI) price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S for the Commercial Services industry in Sweden is similar at about 0.5x. 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.

See our latest analysis for SECITS Holding

How SECITS Holding Has Been Performing

Revenue has risen at a steady rate over the last year for SECITS Holding, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on SECITS Holding will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on SECITS Holding will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For SECITS Holding?

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

If we review the last year of revenue growth, the company posted a worthy increase of 5.9%. This was backed up an excellent period prior to see revenue up by 238% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

This is in contrast to the rest of the industry, which is expected to grow by 8.2% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that SECITS Holding's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From SECITS Holding's P/S?

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 didn't quite envision SECITS Holding's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 4 warning signs for SECITS Holding that we have uncovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.