Subdued Growth No Barrier To Stillfront Group AB (publ) (STO:SF) With Shares Advancing 30%

The Stillfront Group AB (publ) (STO:SF) share price has done very well over the last month, posting an excellent gain of 30%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 35% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Stillfront Group's P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Entertainment industry in Sweden is also close to 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Stillfront Group

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

While the industry has experienced revenue growth lately, Stillfront Group's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is Stillfront Group's Revenue Growth Trending?

Stillfront Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 3.5% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 51% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 0.003% per annum as estimated by the eight analysts watching the company. With the industry predicted to deliver 11% growth per annum, that's a disappointing outcome.

With this in consideration, we think it doesn't make sense that Stillfront Group's P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

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

Its shares have lifted substantially and now Stillfront Group's P/S is back within range of the industry median. 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.

Our check of Stillfront Group's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Plus, you should also learn about this 1 warning sign we've spotted with Stillfront Group.

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.