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Poor Performance Leads Safello Group AB (publ) (STO:SFL) to 28% Price Drop

The Safello Group AB (publ.) (STO:SFL) stock price has declined by a significant 28% in the last 30 days, giving back most of the stock’s recent gains. Still, one bad month didn’t completely ruin the past year, with the stock up 52%, which is great even in a bull market.

Despite the big drop in prices, Safello Group’s price-to-sales (or “P/S”) ratio of 0.2x may still seem like a strong buy at the moment when compared to the broader Capital Markets sector in Sweden, where around half of the companies have a P/S ratio above 4.1x, and even P/S above 12x are quite common. Still, it’s unwise to just take the P/S at face value, as there could be an explanation as to why it’s so limited.

Check out our latest analysis for Safello Group

OM:SFL Price/Sales Ratio and Industry Comparison July 11, 2024

How Is Safello Group Performing?

Revenue has been growing solidly for Safello Group recently, which is good to see. One possibility is that the P/S is low because investors think this respectable revenue growth could underperform the broader industry in the near future. If you like the company, you’d hope that doesn’t happen so that you can potentially pick up some stock while it’s out of favor.

We don’t have analyst estimates, but you can take a look at how recent trends are shaping the company’s future here: free Report on Safello Group’s earnings, revenues and cash flow.

How Is Safello Group’s Revenue Growth Trending?

Safello Group’s P/S ratio would be typical of a company that is expected to deliver very low growth or even falling revenue and, more importantly, perform much worse than the industry.

If we look at revenue growth over the past year, the company saw a valuable 8.4% increase. The last three-year period also saw an excellent 39% increase in overall revenue, helped somewhat by its short-term performance. So it’s fair to say that recent revenue growth for the company has been excellent.

Compared to the industry, which is expected to grow 16% over the next 12 months, the company’s momentum appears to be weaker than its recent medium-term annual earnings results.

With this information, we can see why Safello Group is trading at a lower P/S than the industry. It seems most investors expect the recent limited growth rates to continue in the future and are only willing to pay a lower amount for the stock.

Last word

Safello Group’s P/S has been looking about as weak as its stock price lately. It doesn’t make sense to use the price-to-sales ratio alone to determine whether you should sell your stock, but it can be a practical guide to the company’s future prospects.

As we suspected, our review of Safello Group found that three-year revenue trends contributed to its low P/S, as they appear to be worse than current industry expectations. At this stage, investors believe that the potential for a revenue improvement is not large enough to justify a higher P/S ratio. Unless recent medium-term conditions improve, they will continue to act as a barrier for the stock price at these levels.

It is important to consider the ever-present specter of investment risk. We have identified 3 warning signs about Safello Groupand understanding them should be part of your investment process.

If you are interested in seeing strong companies making profits then you might want to check this out free Here is a list of interesting companies that trade at low P/Es (but have proven they can grow earnings).

Valuation is complex, but we help simplify it.

Find out whether Safello Group is potentially overvalued or undervalued by checking out our comprehensive analysis. fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View Free Analysis

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This article from Simply Wall St is general in nature. We provide commentary based solely on historical data and analyst estimates 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 security and does not take into account your objectives, or your financial situation. We aim to provide long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in the stocks mentioned.

Valuation is complex, but we help simplify it.

Find out whether Safello Group is potentially overvalued or undervalued by checking out our comprehensive analysis. fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View Free Analysis

Have feedback about this article? Concerned about the content? Contact us directly. Alternatively, email [email protected].