Cedergrenska AB (publ)'s (STO:CEDER) Shares Leap 28% Yet They're Still Not Telling The Full Story

Cedergrenska AB (publ) (STO:CEDER) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 15% in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think Cedergrenska's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Sweden's Consumer Services industry is similar at about 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Cedergrenska

What Does Cedergrenska's Recent Performance Look Like?

Revenue has risen firmly for Cedergrenska recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Cedergrenska will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Cedergrenska's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Cedergrenska?

In order to justify its P/S ratio, Cedergrenska would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 7.9% gain to the company's revenues. Pleasingly, revenue has also lifted 55% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 2.4% shows it's a great look while it lasts.

With this information, we find it odd that Cedergrenska is trading at a fairly similar P/S to the industry. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

The Bottom Line On Cedergrenska's P/S

Its shares have lifted substantially and now Cedergrenska's P/S is back within range of the industry median. 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.

As mentioned previously, Cedergrenska currently trades on a P/S on par with the wider industry, but this is lower than expected considering its recent three-year revenue growth is beating forecasts for a struggling industry. There could be some unobserved threats to revenue preventing the P/S ratio from outpacing the industry much like its revenue performance. Without the guidance of analysts, perhaps shareholders are feeling uncertain over whether the revenue performance can continue amidst a declining industry outlook. It appears some are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Cedergrenska (of which 1 shouldn't be ignored!) you should know about.

If you're unsure about the strength of Cedergrenska's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.