What Klarna’s Latest Share Slide Means for Investors After AI-Driven Product Launch

Thinking about what to do with Klarna Group stock? You are definitely not alone. With the share price closing most recently at 39.09, this is a stock traders have been watching closely, and for good reason. Over the past week, Klarna Group’s shares have dropped 7.5%, adding to a 30-day dip of 8.9%. So far in 2024, the stock is down 14.7%. These numbers can feel daunting at first glance, but short-term moves do not always tell the full story about a company’s value or long-term potential.

Some of these recent price swings can be traced back to broader market shifts, especially as investors recalibrate risk in response to changing economic conditions. As market confidence seesaws, Klarna Group’s perceived risks and possible rewards are shifting right along with it. Still, the question remains: with only 1 out of 6 valuation metrics signaling undervaluation, is Klarna Group a hidden bargain, just fairly priced, or something else entirely?

This is where digging into the numbers and looking at each valuation approach can help make sense of it all. In the next section, we will break down exactly how Klarna Group stacks up using key valuation methods. But do not worry, we will go a step further with a perspective you will not want to miss at the end.

Klarna Group scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Klarna Group Excess Returns Analysis

The Excess Returns valuation model looks beyond simple earnings or book value and focuses on how effectively a company reinvests its capital above the cost of equity. In Klarna Group’s case, this approach provides key insight into the firm’s ability to generate value for shareholders through profitable growth.

According to the model, Klarna Group has a Book Value of $6.32 per share and a Stable EPS of $0.41 per share, based on weighted estimates from seven analysts. The Cost of Equity stands at $0.49 per share, resulting in a modest Excess Return of $-0.08 per share. This means Klarna is, on average, returning less than its cost of capital, with an average Return on Equity of 6.68%. The Stable Book Value, based on the median value from the past five years, is $6.15 per share.

Based on these inputs, the model arrives at an intrinsic value significantly below the current share price. The Excess Returns analysis suggests Klarna Group is a striking 757.9% overvalued when compared to its estimated fair worth according to this methodology.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Klarna Group.

Our Excess Returns analysis suggests Klarna Group may be overvalued by 757.9%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Klarna Group Price vs Sales

For companies like Klarna Group, which may not consistently deliver positive earnings, the Price-to-Sales (P/S) ratio is a practical and popular way to assess valuation. The P/S multiple offers insight into how much investors are willing to pay for every dollar of revenue, making it particularly useful when profits are variable or unsteady. Growth expectations and perceived risk also play large roles in shaping what a "normal" P/S ratio should be. Investors might pay more for high-growth, lower-risk firms and less for those viewed as riskier or growing slowly.

Klarna Group is currently trading at a P/S ratio of 4.90x. This is just below its peer average of 5.15x but stands well above the Diversified Financial industry average of 2.57x. That suggests investors are valuing Klarna more like its closest peers than the broader sector, perhaps recognizing its specific business model or growth potential.

Simply Wall St’s proprietary “Fair Ratio” gives a forward-looking view by weighing Klarna’s earnings growth, risks, margins, market cap, and industry factors for a more precise benchmark. Unlike a simple peer or industry comparison, this model tailors valuation to Klarna’s unique profile and outlook. In this case, the actual P/S multiple deviates meaningfully from what the Fair Ratio indicates for Klarna, highlighting a disconnect between market pricing and the company’s fundamentals.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Klarna Group Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is simply the story you tell about Klarna Group, combining your view of its business potential with your own estimates for future revenue, earnings, and margins. This all leads to your calculation of its fair value.

Rather than relying on static metrics, Narratives connect your perspective about the company’s outlook with a tangible financial forecast. This makes it easy to see not just what you think Klarna is worth, but also why. Narratives turn the numbers into a story, so you can align the company’s latest news and developments with your investment view using accessible tools available right on Simply Wall St’s Community page, which millions of investors use every day.

With Narratives, you can quickly compare Klarna’s Fair Value to its current share price and get a clearer picture of whether it is a buy or a sell. Since Narratives are updated the moment new earnings or news arrives, your viewpoint always stays relevant. For example, one investor’s Narrative might price Klarna conservatively at $29, while another’s optimistic outlook places fair value at $50. This showcases just how flexible and personal this approach can be.

Do you think there's more to the story for Klarna Group? Create your own Narrative to let the Community know!

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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