Sentiment Still Eluding Magle Chemoswed Holding AB (publ) (STO:MAGLE)

With a price-to-sales (or "P/S") ratio of 1.2x Magle Chemoswed Holding AB (publ) (STO:MAGLE) may be sending bullish signals at the moment, given that almost half of all the Life Sciences companies in Sweden have P/S ratios greater than 2.1x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for Magle Chemoswed Holding

How Has Magle Chemoswed Holding Performed Recently?

Recent times have been advantageous for Magle Chemoswed Holding as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

In order to justify its P/S ratio, Magle Chemoswed Holding would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 44% last year. Pleasingly, revenue has also lifted 118% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 9.5% over the next year. That's shaping up to be similar to the 9.0% growth forecast for the broader industry.

With this information, we find it odd that Magle Chemoswed Holding is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

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 examination of Magle Chemoswed Holding's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 2 warning signs for Magle Chemoswed Holding (1 makes us a bit uncomfortable!) that we have uncovered.

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.