Take Care Before Jumping Onto Unibap AB (publ) (STO:UNIBAP) Even Though It's 28% Cheaper

The Unibap AB (publ) (STO:UNIBAP) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 91%, which is great even in a bull market.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Unibap's P/S ratio of 2.4x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in Sweden is also close to 1.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Unibap

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

Recent times have been quite advantageous for Unibap as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Unibap will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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Is There Some Revenue Growth Forecasted For Unibap?

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

Retrospectively, the last year delivered an exceptional 40% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 7.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Unibap's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Unibap's P/S

With its share price dropping off a cliff, the P/S for Unibap looks to be in line with the rest of the Electronic industry. 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.

To our surprise, Unibap revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Having said that, be aware Unibap is showing 3 warning signs in our investment analysis, and 2 of those are significant.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.