Market Cool On Aros Bostadsutveckling AB (publ)'s (STO:AROS) Revenues

You may think that with a price-to-sales (or "P/S") ratio of 1.7x Aros Bostadsutveckling AB (publ) (STO:AROS) is definitely a stock worth checking out, seeing as almost half of all the Real Estate companies in Sweden have P/S ratios greater than 4.6x and even P/S above 8x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

View our latest analysis for Aros Bostadsutveckling

How Aros Bostadsutveckling Has Been Performing

Aros Bostadsutveckling certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Aros Bostadsutveckling's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an explosive gain to the company's top line. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue growth will be highly resilient over the next three years growing by 33% each year. With the rest of the industry predicted to shrink by 1.6% per annum, that would be a fantastic result.

With this information, we find it very odd that Aros Bostadsutveckling is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the contrarian forecasts and have been accepting significantly lower selling prices.

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 look into Aros Bostadsutveckling's analyst forecasts has shown that it could be trading at a significant discount in terms of P/S, as it is expected to far outperform the industry. When we see a superior revenue outlook with some actual growth, we can only assume investor uncertainty is what's been suppressing the P/S figures. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. It appears many are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

Having said that, be aware Aros Bostadsutveckling is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.