Investors Appear Satisfied With KebNi AB (publ)'s (STO:KEBNI B) Prospects As Shares Rocket 27%

Despite an already strong run, KebNi AB (publ) (STO:KEBNI B) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days bring the annual gain to a very sharp 54%.

After such a large jump in price, when almost half of the companies in Sweden's Communications industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider KebNi as a stock not worth researching with its 4.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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What Does KebNi's P/S Mean For Shareholders?

KebNi certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It seems that many are expecting the company to continue defying the broader industry adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is KebNi's Revenue Growth Trending?

In order to justify its P/S ratio, KebNi would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 55%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 23% over the next year. That's shaping up to be materially higher than the 1.0% growth forecast for the broader industry.

In light of this, it's understandable that KebNi's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

KebNi's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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've established that KebNi maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Communications industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - KebNi has 4 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on KebNi, 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.