Potential Upside For AIK Fotboll AB (publ) (NGM:AIK B) Not Without Risk

When you see that almost half of the companies in the Entertainment industry in Sweden have price-to-sales ratios (or "P/S") above 0.7x, AIK Fotboll AB (publ) (NGM:AIK B) looks to be giving off some buy signals with its 0.1x 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 AIK Fotboll

How AIK Fotboll Has Been Performing

Revenue has risen firmly for AIK Fotboll recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. Those who are bullish on AIK Fotboll will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on AIK Fotboll will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For AIK Fotboll?

There's an inherent assumption that a company should underperform the industry for P/S ratios like AIK Fotboll's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.5% last year. The latest three year period has also seen an excellent 77% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 1.7% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that AIK Fotboll is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From AIK Fotboll's P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of AIK Fotboll revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for AIK Fotboll you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.