It's Down 28% But Harm Reduction Group AB (NGM:NOHARM) Could Be Riskier Than It Looks

The Harm Reduction Group AB (NGM:NOHARM) share price has fared very poorly over the last month, falling by a substantial 28%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 38% in that time.

Following the heavy fall in price, Harm Reduction Group's price-to-sales (or "P/S") ratio of 0.3x might make it look like a buy right now compared to the Electronic industry in Sweden, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Harm Reduction Group

How Harm Reduction Group Has Been Performing

Harm Reduction Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Harm Reduction Group's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 47% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 29% each year as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.9% per year, which is noticeably less attractive.

With this in consideration, we find it intriguing that Harm Reduction Group's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Harm Reduction Group's P/S

The southerly movements of Harm Reduction Group's shares means its P/S is now sitting at a pretty low level. 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.

Harm Reduction Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for Harm Reduction Group you should be aware of, and 1 of them is a bit unpleasant.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.