What You Can Learn From Checkin.Com Group AB (publ)'s (STO:CHECK) P/S After Its 26% Share Price Crash

Checkin.Com Group AB (publ) (STO:CHECK) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 40% in that time.

Even after such a large drop in price, given around half the companies in Sweden's Software industry have price-to-sales ratios (or "P/S") below 2.4x, you may still consider Checkin.Com Group as a stock to avoid entirely with its 5.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Checkin.Com Group

How Has Checkin.Com Group Performed Recently?

Checkin.Com Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Checkin.Com Group.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Checkin.Com Group's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 21% last year. Pleasingly, revenue has also lifted 226% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 31% as estimated by the three analysts watching the company. With the industry only predicted to deliver 18%, the company is positioned for a stronger revenue result.

With this information, we can see why Checkin.Com Group is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Checkin.Com Group's shares may have suffered, but its P/S remains high. 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 Checkin.Com Group's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Checkin.Com Group that you need to be mindful of.

If these risks are making you reconsider your opinion on Checkin.Com Group, 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.