Market Cool On Harm Reduction Group AB (publ)'s (NGM:NOHARM) Revenues Pushing Shares 30% Lower

Harm Reduction Group AB (publ) (NGM:NOHARM) shares have retraced a considerable 30% in the last month, reversing a fair amount of their solid recent performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 58% loss during that time.

Following the heavy fall in price, considering around half the companies operating in Sweden's Tobacco industry have price-to-sales ratios (or "P/S") above 1.3x, you may consider Harm Reduction Group as an solid investment opportunity with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Harm Reduction Group

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

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. If this is the case, 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.

Do Revenue Forecasts Match The Low P/S Ratio?

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.

Retrospectively, the last year delivered a frustrating 2.0% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 33% each year during the coming three years according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 3.4% per year, which is noticeably less attractive.

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

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

The southerly movements of Harm Reduction Group's shares means its P/S is now sitting at a pretty low level. 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.

To us, it seems Harm Reduction Group currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

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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