Vimab Group AB (publ) (STO:VIMAB) Soars 29% But It's A Story Of Risk Vs Reward

Vimab Group AB (publ) (STO:VIMAB) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Vimab Group's P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Professional Services industry in Sweden is about the same. 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.

Check out our latest analysis for Vimab Group

What Does Vimab Group's P/S Mean For Shareholders?

The revenue growth achieved at Vimab Group over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Vimab Group 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 Vimab Group will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Vimab Group's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 72% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 4.6% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Vimab 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 Vimab Group's P/S?

Its shares have lifted substantially and now Vimab Group's P/S is back within range of the industry median. 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.

To our surprise, Vimab 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. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Vimab Group (of which 2 are a bit concerning!) you should know about.

If these risks are making you reconsider your opinion on Vimab Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.