Cedergrenska AB (publ)'s (STO:CEDER) Subdued P/S Might Signal An Opportunity

It's not a stretch to say that Cedergrenska AB (publ)'s (STO:CEDER) price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" for companies in the Consumer Services industry in Sweden, where the median P/S ratio is around 0.4x. 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.

Check out our latest analysis for Cedergrenska

How Cedergrenska Has Been Performing

Revenue has risen at a steady rate over the last year for Cedergrenska, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If not, then at least existing shareholders probably aren't too pessimistic 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 Cedergrenska's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Cedergrenska's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 3.0%. Pleasingly, revenue has also lifted 51% 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.

Comparing that to the industry, which is only predicted to deliver 5.1% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Cedergrenska's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We didn't quite envision Cedergrenska's 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. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Cedergrenska (of which 1 is potentially serious!) 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.