Investors Give Fragbite Group AB (publ) (STO:FRAG) Shares A 31% Hiding

The Fragbite Group AB (publ) (STO:FRAG) share price has softened a substantial 31% over the previous 30 days, handing back much of the gains the stock has made lately. For any long-term shareholders, the last month ends a year to forget by locking in a 99% share price decline.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Fragbite Group's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Entertainment industry in Sweden is also close to 0.7x. 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.

Check out our latest analysis for Fragbite Group

How Fragbite Group Has Been Performing

With its revenue growth in positive territory compared to the declining revenue of most other companies, Fragbite Group has been doing quite well of late. One possibility is that the P/S ratio is moderate because investors think the company's revenue will be less resilient moving forward. Those who are bullish on Fragbite Group will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

Keen to find out how analysts think Fragbite Group's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Fragbite Group would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.1% last year. While this performance is only fair, the company was still able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 90% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 1.3%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Fragbite Group's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Following Fragbite Group's share price tumble, its P/S is just clinging on to the industry median 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.

Looking at Fragbite Group's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 4 warning signs for Fragbite Group that you need to take into consideration.

If these risks are making you reconsider your opinion on Fragbite Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.