Tellusgruppen AB (publ) (STO:TELLUS) Might Not Be As Mispriced As It Looks

It's not a stretch to say that Tellusgruppen AB (publ)'s (STO:TELLUS) price-to-sales (or "P/S") ratio of 0.2x 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. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Tellusgruppen

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

The revenue growth achieved at Tellusgruppen over the last year would be more than acceptable for most companies. 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 that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. Pleasingly, revenue has also lifted 111% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 4.9% shows it's noticeably more attractive.

With this information, we find it interesting that Tellusgruppen 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.

What We Can Learn From Tellusgruppen's P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

To our surprise, Tellusgruppen revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. 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.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Tellusgruppen (2 don't sit too well with us!) that you should be aware of before investing here.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.