Positive Sentiment Still Eludes Acroud AB (publ) (STO:ACROUD) Following 29% Share Price Slump

Acroud AB (publ) (STO:ACROUD) shares have had a horrible month, losing 29% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 85% loss during that time.

Since its price has dipped substantially, given about half the companies operating in Sweden's Hospitality industry have price-to-sales ratios (or "P/S") above 1.5x, you may consider Acroud as an attractive investment with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Acroud

What Does Acroud's P/S Mean For Shareholders?

For instance, Acroud's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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 out of favour.

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

Is There Any Revenue Growth Forecasted For Acroud?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.6%. Still, the latest three year period has seen an excellent 49% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 1.1% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Acroud 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 Does Acroud's P/S Mean For Investors?

Acroud's recently weak share price has pulled its P/S back below other Hospitality companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We're very surprised to see Acroud currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. 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. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 4 warning signs for Acroud you should be aware of, and 3 of them don't sit too well with us.

If these risks are making you reconsider your opinion on Acroud, 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.