Evaluating Klarna Group After 32.8% YTD Drop and Global Expansion Push
Table of Contents
If you are wondering whether Klarna Group at $30.78 is a beaten down opportunity or a value trap, you are in the right place to unpack what the market is really pricing in.
The stock has slipped 1.0% over the last week but is still up 5.9% over the past month, while year to date it is down a hefty 32.8%, which hints at shifting sentiment around its growth and risk profile.
Recent headlines have focused on Klarna’s push to expand its presence in key international markets and deepen partnerships with major retailers. This underlines its ambition to cement a leading position in the buy now, pay later space. At the same time, ongoing sector wide debates about regulation and consumer credit quality continue to shape how investors think about the sustainability of that growth.
Right now, Klarna scores just 2/6 on our valuation checks, so we will break down what that means across different valuation approaches, and later explore a more holistic way to think about what this business might really be worth.
Klarna Group scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
The Excess Returns model looks at whether a company can earn returns on shareholders’ equity that are higher than the return investors demand. If that excess is negative or weak, the equity is usually worth less than the market is hoping for.
For Klarna Group, the picture is challenging. Book Value sits at $6.49 per share, with a Stable EPS estimate of $0.35 per share, based on weighted future Return on Equity estimates from 8 analysts. Against this, the Cost of Equity is $0.67 per share, implying an Excess Return of $-0.32 per share. That aligns with an Average Return on Equity of just 4.35%, which is below what equity holders typically require.
The model also assumes a Stable Book Value of $8.09 per share, drawn from estimates by 5 analysts. However, the weak excess return profile means these assets are not expected to generate strong value creation over time. On this basis, the Excess Returns valuation implies an intrinsic value roughly 1650.8% below the current share price of $30.78, indicating that the stock appears significantly overvalued under this framework.
For a business like Klarna that is still reshaping its profitability profile, the price to sales ratio is often a more reliable yardstick than earnings based multiples. Sales tend to be less volatile than net profit, so this metric can give a cleaner read on how much investors are willing to pay for each dollar of revenue.
In general, higher growth, stronger margins and lower perceived risk justify a higher normal multiple, while slower growth or greater regulatory and credit risk warrant a discount. Klarna currently trades on a price to sales ratio of 3.62x, slightly below the peer group average of 3.74x but well above the broader Diversified Financial industry average of 2.56x. This suggests the market is still pricing in a premium for its growth story.
Simply Wall St’s Fair Ratio is a proprietary estimate of what Klarna’s price to sales multiple should be, after adjusting for its growth outlook, profitability, risk profile, industry positioning and market cap. This makes it more informative than a simple comparison with peers or the sector, which can overlook important differences in business quality and risk. With Klarna’s current 3.62x sitting materially above our assessed Fair Ratio, the shares screen as modestly expensive on this framework.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a smarter, story driven way to invest that goes beyond static ratios.
A Narrative is simply your view of a company turned into numbers, where you spell out the story you believe, translate it into assumptions for future revenue, earnings and margins, and from that derive a fair value estimate.
This links Klarna Group’s business story to a structured financial forecast and then directly to a fair value, so you can clearly see how your expectations compare to the current market price.
Narratives on Simply Wall St, available to millions of investors in the Community page, make this process easy and accessible by showing whether your fair value is above or below today’s share price. They update dynamically as new earnings, news or guidance change the outlook.
For example, one investor might build a Narrative where rapid international expansion and improving margins justify a materially higher fair value for Klarna than the current price. Another investor might assume slower growth and tighter regulation that lead to a significantly lower fair value and a more cautious stance.
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.
Companies discussed in this article include KLAR.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
Join millions of self-starters in getting business resources, tips, and inspiring stories in your inbox.
Unsubscribe anytime. By entering your email, you agree to receive marketing emails from BigBCC. By proceeding, you agree to the Terms and Conditions and Privacy Policy.
SELL ANYWHERE WITH BigBCC
Learn on the go. Try BigBCC for free, and explore all the tools you need to start, run, and grow your business.
