Viaplay Group AB (publ)'s (STO:VPLAY B) 28% Share Price Surge Not Quite Adding Up

Viaplay Group AB (publ) (STO:VPLAY B) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 4.9% over the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Viaplay Group's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Media industry in Sweden is also close to 0.4x. 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 Viaplay Group

What Does Viaplay Group's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Viaplay Group's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Viaplay Group.

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

Viaplay 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 3.6% decrease to the company's top line. Even so, admirably revenue has lifted 39% in aggregate from three years ago, notwithstanding the last 12 months. 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.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue growth is heading into negative territory, declining 0.3% over the next year. Meanwhile, the broader industry is forecast to expand by 5.8%, which paints a poor picture.

With this information, we find it concerning that Viaplay Group is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. 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 Viaplay Group's P/S?

Viaplay Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It appears that Viaplay Group currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Viaplay Group you should know about.

If you're unsure about the strength of Viaplay Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.