Seamless Distribution Systems AB (publ) (NGM:SDS) Shares Fly 29% But Investors Aren't Buying For Growth

Seamless Distribution Systems AB (publ) (NGM:SDS) shares have had a really impressive month, gaining 29% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.8% in the last twelve months.

Even after such a large jump in price, Seamless Distribution Systems' price-to-sales (or "P/S") ratio of 0.5x might still make it look like a buy right now compared to the Software industry in Sweden, where around half of the companies have P/S ratios above 1.6x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Seamless Distribution Systems

What Does Seamless Distribution Systems' Recent Performance Look Like?

Seamless Distribution Systems could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Seamless Distribution Systems' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 15%. This means it has also seen a slide in revenue over the longer-term as revenue is down 19% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 4.4% each year during the coming three years according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 18% per year, which is noticeably more attractive.

With this information, we can see why Seamless Distribution Systems is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Seamless Distribution Systems' P/S Mean For Investors?

Despite Seamless Distribution Systems' share price climbing recently, its P/S still lags most other companies. 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.

As we suspected, our examination of Seamless Distribution Systems' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Seamless Distribution Systems (1 is potentially serious!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Seamless Distribution Systems, 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.