Advenica AB (publ) (STO:ADVE) Shares Slammed 25% But Getting In Cheap Might Be Difficult Regardless

Explore Advenica's Fair Values from the Community and select yours

Advenica AB (publ) (STO:ADVE) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Looking at the bigger picture, even after this poor month the stock is up 55% in the last year.

Even after such a large drop in price, when almost half of the companies in Sweden's Software industry have price-to-sales ratios (or "P/S") below 2.7x, you may still consider Advenica as a stock probably not worth researching with its 4.6x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Advenica

What Does Advenica's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Advenica has been doing very well. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Advenica's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Advenica?

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

If we review the last year of revenue growth, the company posted a terrific increase of 31%. The strong recent performance means it was also able to grow revenue by 66% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 7.1% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Advenica is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What Does Advenica's P/S Mean For Investors?

There's still some elevation in Advenica's P/S, even if the same can't be said for its share price recently. 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.

As we suspected, our examination of Advenica revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Advenica that you need to take into consideration.

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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.