Oatly Group AB (NASDAQ:OTLY) Might Not Be As Mispriced As It Looks After Plunging 27%

To the annoyance of some shareholders, Oatly Group AB (NASDAQ:OTLY) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 26% share price drop.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Oatly Group's P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Food industry in the United States is also close to 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Oatly Group

How Has Oatly Group Performed Recently?

With revenue growth that's superior to most other companies of late, Oatly Group has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is Oatly Group's Revenue Growth Trending?

Oatly Group'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.

If we review the last year of revenue growth, the company posted a worthy increase of 5.1%. Pleasingly, revenue has also lifted 39% in aggregate from three years ago, partly 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 three years should generate growth of 6.5% each year as estimated by the eight analysts watching the company. With the industry only predicted to deliver 3.0% per year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Oatly Group's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

With its share price dropping off a cliff, the P/S for Oatly Group looks to be in line with the rest of the Food industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Oatly Group currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for Oatly Group that you need to take into consideration.

If these risks are making you reconsider your opinion on Oatly Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.