Harm Reduction Group AB (publ) (NGM:NOHARM) Might Not Be As Mispriced As It Looks After Plunging 25%

To the annoyance of some shareholders, Harm Reduction Group AB (publ) (NGM:NOHARM) shares are down a considerable 25% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 63% share price decline.

After such a large drop in price, considering around half the companies operating in Sweden's Tobacco industry have price-to-sales ratios (or "P/S") above 1x, you may consider Harm Reduction Group as an solid investment opportunity with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Harm Reduction Group

How Has Harm Reduction Group Performed Recently?

While the industry has experienced revenue growth lately, Harm Reduction Group's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Harm Reduction Group.

Is There Any Revenue Growth Forecasted For Harm Reduction Group?

In order to justify its P/S ratio, Harm Reduction Group would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.1%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should demonstrate the company's robustness, generating growth of 34% each year as estimated by the only analyst watching the company. Meanwhile, the broader industry is forecast to contract by 2.0% each year, which would indicate the company is doing very well.

With this in mind, we find it intriguing that Harm Reduction Group's P/S falls short of its industry peers. It looks like most investors aren't convinced at all that the company can achieve positive future growth in the face of a shrinking broader industry.

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

Harm Reduction Group's P/S has taken a dip along with its share price. 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.

Our look into Harm Reduction Group's analyst forecasts has shown that it could be trading at a significant discount in terms of P/S, as it is expected to far outperform the industry. There could be some major unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. One major risk is whether its revenue trajectory can keep outperforming under these tough industry conditions. It appears many are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Harm Reduction Group you should know about.

If you're unsure about the strength of Harm Reduction Group'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.