Assessing Klarna (NYSE:KLAR) Valuation Following a 13% Share Price Rebound

Klarna Group (NYSE:KLAR) has been generating interest from investors as its financials reflect significant annual revenue and net income growth. The stock's recent movement highlights ongoing curiosity about how these gains might impact the company's long-term prospects.

See our latest analysis for Klarna Group.

Klarna Group’s share price has bounced back in the last week, delivering a notable 13.1% 7-day share price return that has helped offset some of the year-to-date decline. This renewed momentum suggests investors are warming to the company’s growth story, even as volatility remains a factor in the near term.

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The key question is whether Klarna Group’s recent surge leaves the stock undervalued with room to run, or if the market has already factored in the company’s future growth ambitions. This could leave limited upside for new investors.

Price-to-Sales of 5.3x: Is it justified?

Klarna Group's shares are trading at a price-to-sales ratio of 5.3x, which is notably higher than both the US Diversified Financial industry average and its peer group. With a share price last closing at $42.11, this premium suggests the market has aggressive growth expectations built in.

The price-to-sales ratio reflects how much investors are willing to pay for each dollar of revenue. For fintech and diversified financials, this metric is especially telling, since profits may not yet be realized as companies prioritize scaling and market share.

Despite Klarna's strong revenue growth, its price-to-sales multiple remains above the industry average of 2.7x and the peer group average of 5.2x. This means Klarna is valued at a premium even among similar high-growth peers, raising the bar for its future performance to justify such levels.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Sales of 5.3x (OVERVALUED)

However, weaker profitability and elevated market expectations mean that any unexpected slowdown in revenue growth could quickly reverse sentiment around Klarna Group’s valuation.

Find out about the key risks to this Klarna Group narrative.

Another View: Discounted Cash Flow Challenges the Premium

Looking through the lens of our SWS DCF model, things look very different for Klarna Group. The DCF method estimates Klarna’s fair value to be just $4.55 per share, far below the current market price of $42.11. This indicates significant overvaluation by this method.

Look into how the SWS DCF model arrives at its fair value.

With two major valuation methods pointing in opposite directions, the question arises: can Klarna’s bullish momentum stand up to deeper scrutiny, or is caution warranted for investors chasing the rally?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Klarna Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Klarna Group Narrative

If you have a different take on Klarna Group’s outlook or want to dig into the numbers further, you’re free to draw your own conclusions in just a few minutes. Do it your way

A great starting point for your Klarna Group research is our analysis highlighting 1 key reward and 1 important warning sign that could impact your investment decision.

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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.

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