Not Many Are Piling Into K33 AB (publ) (STO:K33) Stock Yet As It Plummets 31%

To the annoyance of some shareholders, K33 AB (publ) (STO:K33) shares are down a considerable 31% in the last month, which continues a horrid run for the company. The good news is that in the last year, the stock has shone bright like a diamond, gaining 119%.

Following the heavy fall in price, K33's price-to-sales (or "P/S") ratio of 0.4x might make it look like a strong buy right now compared to the wider Capital Markets industry in Sweden, where around half of the companies have P/S ratios above 2.9x and even P/S above 12x are quite common. 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.

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Check out our latest analysis for K33

What Does K33's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, K33 has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If you 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.

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 K33's earnings, revenue and cash flow.

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

In order to justify its P/S ratio, K33 would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The amazing performance means it was also able to grow revenue by 250% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 2.7% shows it's noticeably more attractive.

With this information, we find it odd that K33 is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Shares in K33 have plummeted and its P/S has followed suit. 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.

Our examination of K33 revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 3 warning signs for K33 (2 shouldn't be ignored!) that we have uncovered.

If you're unsure about the strength of K33'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.