Uswe Sports AB (publ) (STO:USWE) Screens Well But There Might Be A Catch

With a median price-to-sales (or "P/S") ratio of close to 0.6x in the Luxury industry in Sweden, you could be forgiven for feeling indifferent about Uswe Sports AB (publ)'s (STO:USWE) P/S ratio, which comes in at about the same. 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 Uswe Sports

How Uswe Sports Has Been Performing

Revenue has risen firmly for Uswe Sports recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

Uswe Sports' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 18%. The latest three year period has also seen an excellent 145% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 6.8% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Uswe Sports 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.

The Final Word

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.

We didn't quite envision Uswe Sports' 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. 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Uswe Sports that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.