Not Many Are Piling Into K33 AB (publ) (STO:K33) Stock Yet As It Plummets 30%

To the annoyance of some shareholders, K33 AB (publ) (STO:K33) shares are down a considerable 30% in the last month, which continues a horrid run for the company. Longer-term shareholders would now have taken a real hit with the stock declining 9.2% in the last year.

Since its price has dipped substantially, K33 may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Capital Markets industry in Sweden have P/S ratios greater than 2.3x and even P/S higher than 11x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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View our latest analysis for K33

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

K33 certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. 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.

Although there are no analyst estimates available for K33, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is K33's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like K33's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 236% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 2.4%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that K33's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From K33's P/S?

Having almost fallen off a cliff, K33's share price has pulled its P/S way down as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

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. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. 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 settle on your opinion, we've discovered 3 warning signs for K33 (2 shouldn't be ignored!) that you should be aware of.

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.