Benign Growth For Avensia AB (publ) (STO:AVEN) Underpins Stock's 26% Plummet

Avensia AB (publ) (STO:AVEN) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 27% in that time.

Since its price has dipped substantially, Avensia may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Software industry in Sweden have P/S ratios greater than 1.8x and even P/S higher than 5x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Avensia

How Avensia Has Been Performing

Avensia could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think Avensia's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Avensia's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.1%. Regardless, revenue has managed to lift by a handy 28% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 4.0% per year over the next three years. That's shaping up to be materially lower than the 17% per year growth forecast for the broader industry.

With this information, we can see why Avensia 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 Avensia's P/S Mean For Investors?

Avensia's P/S has taken a dip along with its share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Avensia maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Avensia, and understanding should be part of your investment process.

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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