The Market Doesn't Like What It Sees From Wästbygg Gruppen AB (publ)'s (STO:WBGR B) Revenues Yet

With a price-to-sales (or "P/S") ratio of 0.2x Wästbygg Gruppen AB (publ) (STO:WBGR B) may be sending very bullish signals at the moment, given that almost half of all the Real Estate companies in Sweden have P/S ratios greater than 4.4x and even P/S higher than 7x are not unusual. 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 Wästbygg Gruppen

What Does Wästbygg Gruppen's P/S Mean For Shareholders?

Recent times have been advantageous for Wästbygg Gruppen 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Wästbygg Gruppen will help you uncover what's on the horizon.

How Is Wästbygg Gruppen's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 34% 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 slump, contracting by 3.9% during the coming year according to the one analyst following the company. Meanwhile, the broader industry is forecast to expand by 11%, which paints a poor picture.

With this in consideration, we find it intriguing that Wästbygg Gruppen's P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

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.

As we suspected, our examination of Wästbygg Gruppen's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Wästbygg Gruppen's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Wästbygg Gruppen that you need to be mindful of.

If these risks are making you reconsider your opinion on Wästbygg Gruppen, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.