Goodbye Kansas Group AB (publ) (STO:GBK) Stocks Pounded By 90% But Not Lagging Industry On Growth Or Pricing

The Goodbye Kansas Group AB (publ) (STO:GBK) share price has fared very poorly over the last month, falling by a substantial 90%. For any long-term shareholders, the last month ends a year to forget by locking in a 100% share price decline.

In spite of the heavy fall in price, when almost half of the companies in Sweden's Entertainment industry have price-to-sales ratios (or "P/S") below 0.7x, you may still consider Goodbye Kansas Group as a stock probably not worth researching with its 1.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Goodbye Kansas Group

How Goodbye Kansas Group Has Been Performing

For example, consider that Goodbye Kansas Group's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Goodbye Kansas Group's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

Goodbye Kansas Group's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.6%. Even so, admirably revenue has lifted 50% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

This is in contrast to the rest of the industry, which is expected to grow by 3.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Goodbye Kansas Group is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does Goodbye Kansas Group's P/S Mean For Investors?

Despite the recent share price weakness, Goodbye Kansas Group's P/S remains higher than most other companies in the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It's no surprise that Goodbye Kansas Group can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

It is also worth noting that we have found 5 warning signs for Goodbye Kansas Group (4 can't be ignored!) that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.