Nexam Chemical Holding AB (publ)'s (STO:NEXAM) Subdued P/S Might Signal An Opportunity

With a price-to-sales (or "P/S") ratio of 1.2x Nexam Chemical Holding AB (publ) (STO:NEXAM) may be sending very bullish signals at the moment, given that almost half of all the Chemicals companies in Sweden have P/S ratios greater than 3.5x and even P/S higher than 6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Nexam Chemical Holding

How Nexam Chemical Holding Has Been Performing

Nexam Chemical Holding could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Nexam Chemical Holding will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Nexam Chemical Holding would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 29% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 5.7% over the next year. With the industry only predicted to deliver 1.9%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Nexam Chemical Holding's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Nexam Chemical Holding's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

A look at Nexam Chemical Holding's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Plus, you should also learn about these 4 warning signs we've spotted with Nexam Chemical Holding.

If you're unsure about the strength of Nexam Chemical Holding'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.