The Market Lifts Actic Group AB (publ) (STO:ATIC) Shares 29% But It Can Do More

Actic Group AB (publ) (STO:ATIC) shares have continued their recent momentum with a 29% gain in the last month alone. This latest share price bounce rounds out a remarkable 449% gain over the last twelve months.

In spite of the firm bounce in price, when close to half the companies operating in Sweden's Hospitality industry have price-to-sales ratios (or "P/S") above 1.6x, you may still consider Actic Group as an enticing stock to check out with its 0.9x 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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View our latest analysis for Actic Group

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

It looks like revenue growth has deserted Actic Group recently, which is not something to boast about. Perhaps the market believes the recent lacklustre revenue performance is a sign of future underperformance relative to industry peers, hurting the P/S. Those who are bullish on Actic Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Actic Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Still, the latest three year period was better as it's delivered a decent 7.1% overall rise in revenue. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing that to the industry, which is predicted to deliver 0.7% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we find it odd that Actic Group is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can maintain recent growth rates.

What Does Actic Group's P/S Mean For Investors?

Actic Group's stock price has surged recently, but its but its P/S still remains modest. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Actic Group revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. revenue trends suggest that the risk of a price decline is low, investors appear to perceive a possibility of revenue volatility in the future.

You need to take note of risks, for example - Actic Group has 3 warning signs (and 2 which make us uncomfortable) we think 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.