It's A Story Of Risk Vs Reward With Cheffelo AB (publ) (STO:CHEF)

There wouldn't be many who think Cheffelo AB (publ)'s (STO:CHEF) price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S for the Food industry in Sweden is similar at about 0.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Cheffelo

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

Cheffelo could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Cheffelo?

The only time you'd be comfortable seeing a P/S like Cheffelo's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 19% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to remain somewhat buoyant, growing by 4.9% during the coming year according to the dual analysts following the company. This isn't typically strong growth, but with the rest of the industry predicted to shrink by 2.2%, that would be a solid result.

Despite the marginal growth, we find it odd that Cheffelo is trading at a fairly similar P/S to the industry. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.

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

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Cheffelo currently trades on a lower than expected P/S since its growth forecasts are potentially beating a struggling industry. There could be some unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You always need to take note of risks, for example - Cheffelo has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Cheffelo'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.