Potential Upside For Spotlight Group AB (publ) (NGM:SPGR) Not Without Risk

With a price-to-sales (or "P/S") ratio of 1.2x Spotlight Group AB (publ) (NGM:SPGR) may be sending very bullish signals at the moment, given that almost half of all the Capital Markets companies in Sweden have P/S ratios greater than 3.5x and even P/S higher than 11x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Spotlight Group

What Does Spotlight Group's Recent Performance Look Like?

Spotlight Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still 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 analyst estimates for the company? Then our free report on Spotlight Group will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Spotlight Group?

In order to justify its P/S ratio, Spotlight Group would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 6.2% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 26% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 8.1% each year as estimated by the sole analyst watching the company. With the industry predicted to deliver 7.0% growth per year, the company is positioned for a comparable revenue result.

With this information, we find it odd that Spotlight Group is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

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

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.

It looks to us like the P/S figures for Spotlight Group remain low despite growth that is expected to be in line with other companies in the industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Spotlight Group (1 shouldn't be ignored!) that you should be aware of before investing here.

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