Harm Reduction Group AB (publ)'s (NGM:NOHARM) Shares Leap 26% Yet They're Still Not Telling The Full Story

The Harm Reduction Group AB (publ) (NGM:NOHARM) share price has done very well over the last month, posting an excellent gain of 26%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 36% over that time.

Although its price has surged higher, Harm Reduction Group's price-to-sales (or "P/S") ratio of 0.4x might still make it look like a buy right now compared to the Tobacco industry in Sweden, where around half of the companies have P/S ratios above 1x and even P/S above 3x are quite common. 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

What Does Harm Reduction Group's Recent Performance Look Like?

Recent times haven't been great for Harm Reduction Group as its revenue has been falling quicker than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.8%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should demonstrate the company's robustness, generating growth of 75% as estimated by the one analyst watching the company. With the rest of the industry predicted to shrink by 12%, that would be a fantastic result.

In light of this, it's quite peculiar that Harm Reduction Group's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the contrarian forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Harm Reduction Group's P/S

Harm Reduction Group's stock price has surged recently, but its but its P/S still remains modest. 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 examination of Harm Reduction Group's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't contributing to its P/S anywhere near as much as we would have predicted. We believe there could be some underlying risks that are keeping the P/S modest in the context of above-average revenue growth. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. It appears many are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Harm Reduction Group (3 are concerning!) that you should be aware of before investing here.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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