24SevenOffice Group AB (publ)'s (NGM:247) P/S Is On The Mark

When close to half the companies in the Software industry in Sweden have price-to-sales ratios (or "P/S") below 1.5x, you may consider 24SevenOffice Group AB (publ) (NGM:247) as a stock to potentially avoid with its 2.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for 24SevenOffice Group

What Does 24SevenOffice Group's Recent Performance Look Like?

24SevenOffice Group has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on 24SevenOffice Group will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For 24SevenOffice Group?

In order to justify its P/S ratio, 24SevenOffice Group would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. The strong recent performance means it was also able to grow revenue by 79% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 15% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's understandable that 24SevenOffice Group's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What Does 24SevenOffice Group's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that 24SevenOffice Group maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for 24SevenOffice Group you should be aware of, and 2 of them are a bit concerning.

If these risks are making you reconsider your opinion on 24SevenOffice Group, 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.