Tobii AB (publ)'s (STO:TOBII) Shares Climb 26% But Its Business Is Yet to Catch Up

Despite an already strong run, Tobii AB (publ) (STO:TOBII) shares have been powering on, with a gain of 26% in the last thirty days. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, there still wouldn't be many who think Tobii's price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in Sweden's Tech industry is similar at about 1.2x. 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.

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See our latest analysis for Tobii

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

There hasn't been much to differentiate Tobii's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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

Is There Some Revenue Growth Forecasted For Tobii?

Tobii's 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.

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. Pleasingly, revenue has also lifted 39% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 9.1% as estimated by the sole analyst watching the company. That's shaping up to be materially lower than the 13% growth forecast for the broader industry.

With this in mind, we find it intriguing that Tobii's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Tobii's P/S

Tobii appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at the analysts forecasts of Tobii's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Tobii is showing 3 warning signs in our investment analysis, and 1 of those is potentially serious.

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.