Bonava AB (publ)'s (STO:BONAV B) Shares May Have Run Too Fast Too Soon

There wouldn't be many who think Bonava AB (publ)'s (STO:BONAV B) price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S for the Consumer Durables industry in Sweden is similar at about 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Bonava

What Does Bonava's Recent Performance Look Like?

Bonava could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Bonava's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Bonava's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 38%. This means it has also seen a slide in revenue over the longer-term as revenue is down 44% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should bring plunging returns, with revenue decreasing 21% as estimated by the three analysts watching the company. Meanwhile, the broader industry is forecast to moderate by 2.1%, which indicates the company should perform poorly indeed.

With this information, it's perhaps strange that Bonava is trading at a fairly similar P/S in comparison. With revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. There's potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth.

What Does Bonava's P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Bonava's analyst forecasts have revealed that its even shakier outlook against the industry isn't impacting its P/S as much as we would have predicted. It's not unusual in cases where revenue growth is poor, that the share price declines, sending the moderate P/S lower relative to the industry. We also have our reservations about the company's ability to sustain this level of performance amidst the challenging industry conditions. A positive change is needed in order to justify the current price-to-sales ratio.

Having said that, be aware Bonava is showing 2 warning signs in our investment analysis, you should know about.

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.