Take Care Before Jumping Onto Fingerprint Cards AB (publ) (STO:FING B) Even Though It's 26% Cheaper

The Fingerprint Cards AB (publ) (STO:FING B) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. For any long-term shareholders, the last month ends a year to forget by locking in a 62% share price decline.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Fingerprint Cards' P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in Sweden is also close to 1.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Fingerprint Cards

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

Fingerprint Cards could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Fingerprint Cards' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Fingerprint Cards' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 32%. The last three years don't look nice either as the company has shrunk revenue by 45% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 70% per annum during the coming three years according to the lone analyst following the company. That's shaping up to be materially higher than the 8.1% per year growth forecast for the broader industry.

In light of this, it's curious that Fingerprint Cards' P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

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

Following Fingerprint Cards' share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Looking at Fingerprint Cards' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Fingerprint Cards (1 is potentially serious) 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.