Stock Analysis

Investors Aren't Entirely Convinced By Fingerprint Cards AB (publ)'s (STO:FING B) Revenues

OM:FING B
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With a median price-to-sales (or "P/S") ratio of close to 1.9x in the Electronic industry in Sweden, you could be forgiven for feeling indifferent about Fingerprint Cards AB (publ)'s (STO:FING B) P/S ratio of 1.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Fingerprint Cards

ps-multiple-vs-industry
OM:FING B Price to Sales Ratio vs Industry April 19th 2023

How Has Fingerprint Cards Performed Recently?

While the industry has experienced revenue growth lately, Fingerprint Cards' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying to much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Fingerprint Cards.

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

Fingerprint Cards' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 36%. The last three years don't look nice either as the company has shrunk revenue by 41% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 58% each year as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.2% per year, which is noticeably less attractive.

With this information, we find it interesting that Fingerprint Cards is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Fingerprint Cards' P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Fingerprint Cards currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Fingerprint Cards that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.