Nyfosa AB (publ)'s (STO:NYF) 25% Share Price Plunge Could Signal Some Risk

The Nyfosa AB (publ) (STO:NYF) share price has fared very poorly over the last month, falling by a substantial 25%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 12% in that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Nyfosa's P/S ratio of 4.7x, since the median price-to-sales (or "P/S") ratio for the Real Estate industry in Sweden is also close to 5.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Nyfosa

What Does Nyfosa's Recent Performance Look Like?

Recent times haven't been great for Nyfosa as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. 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 Nyfosa.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Nyfosa would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.3%. This was backed up an excellent period prior to see revenue up by 49% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 1.7% each year during the coming three years according to the three analysts following the company. With the industry predicted to deliver 5.3% growth per year, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Nyfosa is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Nyfosa's P/S?

With its share price dropping off a cliff, the P/S for Nyfosa looks to be in line with the rest of the Real Estate industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

When you consider that Nyfosa's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Nyfosa (1 is potentially serious!) that you should be aware of before investing here.

If you're unsure about the strength of Nyfosa'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.