MMG Limited (HKG:1208) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 2.6% over the last year.
Although its price has surged higher, there still wouldn't be many who think MMG's price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in Hong Kong's Metals and Mining industry is similar at about 0.6x. 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.
See our latest analysis for MMG
How Has MMG Performed Recently?
Recent times haven't been great for MMG as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
Keen to find out how analysts think MMG's future stacks up against the industry? In that case, our free report is a great place to start.How Is MMG's Revenue Growth Trending?
The only time you'd be comfortable seeing a P/S like MMG's is when the company's growth is tracking the industry closely.
Taking a look back first, we see that the company managed to grow revenues by a handy 3.1% last year. The latest three year period has also seen a 5.3% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 13% per year as estimated by the ten analysts watching the company. That's shaping up to be materially higher than the 9.4% per year growth forecast for the broader industry.
With this information, we find it interesting that MMG is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Bottom Line On MMG's P/S
MMG's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Despite enticing revenue growth figures that outpace the industry, MMG's P/S isn't quite what we'd expect. 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. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.
We don't want to rain on the parade too much, but we did also find 2 warning signs for MMG (1 is a bit unpleasant!) that you need to be mindful of.
If you're unsure about the strength of MMG's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.