Take Care Before Jumping Onto Sustainion Group AB (NGM:SUSG) Even Though It's 29% Cheaper

Sustainion Group AB (NGM:SUSG) shares have had a horrible month, losing 29% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 46% in the last year.

In spite of the heavy fall in price, Sustainion Group's price-to-sales (or "P/S") ratio of 0.6x 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 2.3x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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See our latest analysis for Sustainion Group

What Does Sustainion Group's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Sustainion Group has been doing very well. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Sustainion Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Sustainion Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Sustainion Group?

Sustainion Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 58% gain to the company's top line. The latest three year period has also seen an excellent 208% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 5.4% 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. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Sustainion Group's P/S

The southerly movements of Sustainion Group's shares means its P/S is now sitting at a pretty low level. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We're very surprised to see Sustainion Group currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. 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.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Sustainion Group that you should be aware of.

If you're unsure about the strength of Sustainion Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.