Slammed 27% Northbaze Group AB (publ) (STO:NBZ) Screens Well Here But There Might Be A Catch

Explore Northbaze Group's Fair Values from the Community and select yours

To the annoyance of some shareholders, Northbaze Group AB (publ) (STO:NBZ) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 48% in that time.

Since its price has dipped substantially, considering around half the companies operating in Sweden's Consumer Durables industry have price-to-sales ratios (or "P/S") above 0.7x, you may consider Northbaze Group as an solid investment opportunity with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See our latest analysis for Northbaze Group

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

Northbaze Group certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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 Northbaze Group's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Northbaze Group?

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

If we review the last year of revenue growth, the company posted a terrific increase of 87%. The strong recent performance means it was also able to grow revenue by 91% 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 2.9% 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 odd that Northbaze Group is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

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

Northbaze Group's P/S has taken a dip along with its share price. 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.

Our examination of Northbaze Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. 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 always need to take note of risks, for example - Northbaze Group has 4 warning signs we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.