eCom Teams Sweden AB (publ)'s (STO:ECTM B) Shares Climb 35% But Its Business Is Yet to Catch Up

eCom Teams Sweden AB (publ) (STO:ECTM B) shareholders are no doubt pleased to see that the share price has bounced 35% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 75% share price drop in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about eCom Teams Sweden's P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in Sweden is also close to 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for eCom Teams Sweden

How eCom Teams Sweden Has Been Performing

For instance, eCom Teams Sweden's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for eCom Teams Sweden, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is eCom Teams Sweden's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like eCom Teams Sweden's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 43% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 64% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 4.2% shows it's an unpleasant look.

In light of this, it's somewhat alarming that eCom Teams Sweden's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Key Takeaway

Its shares have lifted substantially and now eCom Teams Sweden's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at eCom Teams Sweden revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you settle on your opinion, we've discovered 6 warning signs for eCom Teams Sweden (4 are concerning!) that you should be aware of.

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.