Storytel AB (publ) (STO:STORY B) Looks Just Right With A 26% Price Jump

Storytel AB (publ) (STO:STORY B) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 65%.

Following the firm bounce in price, you could be forgiven for thinking Storytel is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.7x, considering almost half the companies in Sweden's Media industry have P/S ratios below 0.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Storytel

How Has Storytel Performed Recently?

Storytel's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

In order to justify its P/S ratio, Storytel would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 9.0%. Pleasingly, revenue has also lifted 65% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 10% per year during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 4.1% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Storytel's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Storytel's P/S Mean For Investors?

Storytel's P/S is on the rise since its shares have risen strongly. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Storytel maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Media industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Storytel with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.