Many Still Looking Away From Seamless Distribution Systems AB (publ) (STO:SDS)

You may think that with a price-to-sales (or "P/S") ratio of 0.5x Seamless Distribution Systems AB (publ) (STO:SDS) is a stock worth checking out, seeing as almost half of all the Software companies in Sweden have P/S ratios greater than 1.7x and even P/S higher than 5x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Seamless Distribution Systems

What Does Seamless Distribution Systems' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Seamless Distribution Systems' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Seamless Distribution Systems' Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 15%. The last three years don't look nice either as the company has shrunk revenue by 19% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 16% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 16% growth , the company is positioned for a comparable revenue result.

In light of this, it's peculiar that Seamless Distribution Systems' P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Seamless Distribution Systems' P/S

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.

It looks to us like the P/S figures for Seamless Distribution Systems remain low despite growth that is expected to be in line with other companies in the industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

It is also worth noting that we have found 4 warning signs for Seamless Distribution Systems (1 doesn't sit too well with us!) that you need to take into consideration.

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.

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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.