Take Care Before Jumping Onto Oscar Properties Holding AB (publ) (STO:OP) Even Though It's 33% Cheaper

Oscar Properties Holding AB (publ) (STO:OP) shares have had a horrible month, losing 33% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 54% share price decline.

After such a large drop in price, Oscar Properties Holding's price-to-sales (or "P/S") ratio of 0.1x might make it look like a strong buy right now compared to the wider Real Estate industry in Sweden, where around half of the companies have P/S ratios above 5.9x and even P/S above 9x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Oscar Properties Holding

How Oscar Properties Holding Has Been Performing

For instance, Oscar Properties Holding's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. Those who are bullish on Oscar Properties Holding will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Oscar Properties Holding will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

Oscar Properties Holding's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered a frustrating 49% decrease to the company's top line. Even so, admirably revenue has lifted 172% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

This is in contrast to the rest of the industry, which is expected to grow by 3.2% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Oscar Properties Holding is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What Does Oscar Properties Holding's P/S Mean For Investors?

Oscar Properties Holding's P/S looks about as weak as its stock price lately. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We're very surprised to see Oscar Properties Holding currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

There are also other vital risk factors to consider before investing and we've discovered 5 warning signs for Oscar Properties Holding that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.