What You Can Learn From Kjell Group AB (publ)'s (STO:KJELL) P/S After Its 26% Share Price Crash

Kjell Group AB (publ) (STO:KJELL) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 33% share price drop.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Kjell Group's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in Sweden is also close to 0.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Kjell Group

What Does Kjell Group's Recent Performance Look Like?

Kjell Group's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

Kjell Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Fortunately, a few good years before that means that it was still able to grow revenue by 15% in total over the last three years. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 5.9% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 4.3%, which is not materially different.

With this information, we can see why Kjell Group is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Kjell Group's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

A Kjell Group's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Specialty Retail industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

You need to take note of risks, for example - Kjell Group has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.