Storytel AB (publ)'s (STO:STORY B) 28% Jump Shows Its Popularity With Investors

Storytel AB (publ) (STO:STORY B) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The annual gain comes to 135% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, when almost half of the companies in Sweden's Media industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider Storytel as a stock probably not worth researching with its 1.3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Storytel

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

With revenue growth that's inferior to most other companies of late, Storytel has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

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.

Is There Enough Revenue Growth Forecasted For Storytel?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Storytel's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. This was backed up an excellent period prior to see revenue up by 62% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 9.1% as estimated by the dual analysts watching the company. With the industry only predicted to deliver 5.4%, the company is positioned for a stronger revenue result.

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 shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

As we suspected, our examination of Storytel's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Storytel with six simple checks.

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.