What You Can Learn From KebNi AB (publ)'s (STO:KEBNI B) P/S After Its 29% Share Price Crash

KebNi AB (publ) (STO:KEBNI B) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 24% share price drop.

In spite of the heavy fall in price, given close to half the companies operating in Sweden's Communications industry have price-to-sales ratios (or "P/S") below 1.8x, you may still consider KebNi as a stock to potentially avoid with its 2.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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View our latest analysis for KebNi

How KebNi Has Been Performing

With its revenue growth in positive territory compared to the declining revenue of most other companies, KebNi has been doing quite well of late. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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 .

Is There Enough Revenue Growth Forecasted For KebNi?

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

If we review the last year of revenue growth, the company posted a terrific increase of 91%. 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.

Looking ahead now, revenue is anticipated to climb by 20% per year during the coming three years according to the three analysts following the company. With the industry only predicted to deliver 4.2% per year, the company is positioned for a stronger revenue result.

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 Key Takeaway

There's still some elevation in KebNi's P/S, even if the same can't be said for its share price recently. 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.

As we suspected, our examination of KebNi's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

We don't want to rain on the parade too much, but we did also find 3 warning signs for KebNi (1 can't be ignored!) that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.