More Unpleasant Surprises Could Be In Store For Goodbye Kansas Group AB (publ)'s (STO:GBK) Shares After Tumbling 28%

Goodbye Kansas Group AB (publ) (STO:GBK) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 26% in the last year.

Although its price has dipped substantially, there still wouldn't be many who think Goodbye Kansas Group's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Sweden's Entertainment industry is similar at about 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.

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Check out our latest analysis for Goodbye Kansas Group

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

With revenue growth that's exceedingly strong of late, Goodbye Kansas Group has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

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

If we review the last year of revenue growth, the company posted a terrific increase of 34%. Still, revenue has fallen 31% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 17% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Goodbye Kansas Group is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Goodbye Kansas Group's P/S?

Following Goodbye Kansas 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.

The fact that Goodbye Kansas Group currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Goodbye Kansas Group (4 are potentially serious!) that you should be aware of before investing here.

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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.