Stock Analysis

There's Reason For Concern Over Byggfakta Group Nordic HoldCo AB (publ)'s (STO:BFG) Price

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When you see that almost half of the companies in the Software industry in Sweden have price-to-sales ratios (or "P/S") below 1.7x, Byggfakta Group Nordic HoldCo AB (publ) (STO:BFG) looks to be giving off some sell signals with its 2.7x 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.

See our latest analysis for Byggfakta Group Nordic HoldCo

OM:BFG Price to Sales Ratio vs Industry December 16th 2023

What Does Byggfakta Group Nordic HoldCo's P/S Mean For Shareholders?

Byggfakta Group Nordic HoldCo could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

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

How Is Byggfakta Group Nordic HoldCo's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Byggfakta Group Nordic HoldCo's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an exceptional 16% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 7.3% over the next year. That's shaping up to be materially lower than the 17% growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that Byggfakta Group Nordic HoldCo's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Byggfakta Group Nordic HoldCo's P/S

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.

It comes as a surprise to see Byggfakta Group Nordic HoldCo trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

Before you take the next step, you should know about the 1 warning sign for Byggfakta Group Nordic HoldCo that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Valuation is complex, but we're helping make it simple.

Find out whether Byggfakta Group Nordic HoldCo is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.