Fingerprint Cards AB (publ) (STO:FING B) Surges 29% Yet Its Low P/S Is No Reason For Excitement

Fingerprint Cards AB (publ) (STO:FING B) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. But the last month did very little to improve the 94% share price decline over the last year.

Even after such a large jump in price, Fingerprint Cards' price-to-sales (or "P/S") ratio of 0.4x 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 2x 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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Check out our latest analysis for Fingerprint Cards

How Fingerprint Cards Has Been Performing

The recent revenue growth at Fingerprint Cards would have to be considered satisfactory if not spectacular. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Fingerprint Cards' earnings, revenue and cash flow.

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 Fingerprint Cards' is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 2.8% last year. Still, lamentably revenue has fallen 66% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 5.1% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Fingerprint Cards is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Fingerprint Cards' P/S?

The latest share price surge wasn't enough to lift Fingerprint Cards' P/S close to the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Fingerprint Cards revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for Fingerprint Cards (3 are significant!) that we have uncovered.

If you're unsure about the strength of Fingerprint Cards' 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.