Market Cool On Fragbite Group AB (publ)'s (STO:FRAG) Revenues Pushing Shares 25% Lower

Unfortunately for some shareholders, the Fragbite Group AB (publ) (STO:FRAG) share price has dived 25% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 98% share price decline.

In spite of the heavy fall in price, it's still not a stretch to say that Fragbite Group's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Entertainment industry in Sweden, where the median P/S ratio is around 0.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Our free stock report includes 5 warning signs investors should be aware of before investing in Fragbite Group. Read for free now.

See our latest analysis for Fragbite Group

What Does Fragbite Group's P/S Mean For Shareholders?

For instance, Fragbite Group's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Fragbite Group's earnings, revenue and cash flow.

How Is Fragbite Group's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 18% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 26% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 2.1% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Fragbite Group's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Fragbite Group's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

To our surprise, Fragbite Group revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Fragbite Group (4 don't sit too well with us!) that you should be aware of before investing here.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.