Even With A 26% Surge, Cautious Investors Are Not Rewarding TagMaster AB (publ)'s (STO:TAGM B) Performance Completely

TagMaster AB (publ) (STO:TAGM B) shares have continued their recent momentum with a 26% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 23% over that time.

Even after such a large jump in price, TagMaster may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Communications industry in Sweden have P/S ratios greater than 1.6x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for TagMaster

How TagMaster Has Been Performing

Recent times have been pleasing for TagMaster as its revenue has risen in spite of the industry's average revenue going into reverse. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. Those who are bullish on TagMaster will be hoping that this isn't the case and the company continues to beat out the industry.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, TagMaster would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 6.9% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 32% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 3.3% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that TagMaster's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From TagMaster's P/S?

Despite TagMaster's share price climbing recently, its P/S still lags most other companies. 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.

TagMaster's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Before you take the next step, you should know about the 2 warning signs for TagMaster (1 is significant!) that we have uncovered.

If you're unsure about the strength of TagMaster's 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.