Sustainion Group AB (NGM:SUSG) Soars 59% But It's A Story Of Risk Vs Reward

Sustainion Group AB (NGM:SUSG) shares have had a really impressive month, gaining 59% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 11% in the last twelve months.

In spite of the firm bounce in price, Sustainion Group's price-to-sales (or "P/S") ratio of 0.8x might still 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 6x are quite common. 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 Sustainion Group

What Does Sustainion Group's Recent Performance Look Like?

It looks like revenue growth has deserted Sustainion Group recently, which is not something to boast about. Perhaps the market believes the recent lacklustre revenue performance is a sign of future underperformance relative to industry peers, hurting the P/S. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sustainion Group will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Sustainion Group's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. The latest three year period has seen an incredible overall rise in revenue, in spite of this mediocre revenue growth of late. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 7.6% shows it's noticeably more attractive.

With this in mind, we find it intriguing that Sustainion Group's P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Sustainion Group's P/S?

Despite Sustainion Group's share price climbing recently, its P/S still lags most other companies. 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.

Our examination of Sustainion Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Sustainion Group (of which 1 makes us a bit uncomfortable!) you should know about.

If these risks are making you reconsider your opinion on Sustainion 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.

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