Triona AB's (NGM:TRIONA) Subdued P/S Might Signal An Opportunity

It's not a stretch to say that Triona AB's (NGM:TRIONA) price-to-sales (or "P/S") ratio of 0.8x seems quite "middle-of-the-road" for IT companies in Sweden, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Triona

How Has Triona Performed Recently?

For example, consider that Triona's financial performance has been pretty ordinary lately as revenue growth is non-existent. One possibility is that the P/S is moderate because investors think this benign revenue growth rate might not be enough to outperform the broader industry in the near future. Those who are bullish on Triona will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Triona's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Triona's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow revenue by an impressive 47% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Comparing that to the industry, which is predicted to shrink 4.8% in the next 12 months, the company's positive momentum based on recent medium-term revenue results is a bright spot for the moment.

With this information, we find it odd that Triona is trading at a fairly similar P/S to the industry. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

The Final Word

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 mentioned previously, Triona currently trades on a P/S on par with the wider industry, but this is lower than expected considering its recent three-year revenue growth is beating forecasts for a struggling industry. There could be some unobserved threats to revenue preventing the P/S ratio from outpacing the industry much like its revenue performance. Without the guidance of analysts, perhaps shareholders are feeling uncertain over whether the revenue performance can continue amidst a declining industry outlook. The fact that the company's relative performance has not provided a kick to the share price suggests that some investors are anticipating revenue instability.

You need to take note of risks, for example - Triona has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If you're unsure about the strength of Triona's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.