Benign Growth For Safello Group AB (publ) (STO:SFL) Underpins Stock's 26% Plummet

Safello Group AB (publ) (STO:SFL) shares have had a horrible month, losing 26% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 38%, which is great even in a bull market.

Since its price has dipped substantially, Safello Group's price-to-sales (or "P/S") ratio of 0.2x 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 3.7x and even P/S above 12x are quite common. 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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Check out our latest analysis for Safello Group

How Has Safello Group Performed Recently?

Recent times haven't been great for Safello Group as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Keen to find out how analysts think Safello Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Safello Group?

The only time you'd be truly comfortable seeing a P/S as depressed as Safello Group's is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 6.4%. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 6.2% each year during the coming three years according to the sole analyst following the company. That's shaping up to be materially lower than the 12% per annum growth forecast for the broader industry.

With this information, we can see why Safello Group is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

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

Having almost fallen off a cliff, Safello Group's share price has pulled its P/S way down as well. 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.

As expected, our analysis of Safello Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Safello Group that we have uncovered.

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.