Market Still Lacking Some Conviction On Matrix Service Company (NASDAQ:MTRX)
When you see that almost half of the companies in the Construction industry in the United States have price-to-sales ratios (or "P/S") above 0.9x, Matrix Service Company (NASDAQ:MTRX) looks to be giving off some buy signals with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
See our latest analysis for Matrix Service
How Matrix Service Has Been Performing
Recent times haven't been great for Matrix Service as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.
Want the full picture on analyst estimates for the company? Then our free report on Matrix Service will help you uncover what's on the horizon.
How Is Matrix Service's Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Matrix Service's to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 16% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 39% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Turning to the outlook, the next year should generate growth of 11% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 8.6%, which is noticeably less attractive.
With this in consideration, we find it intriguing that Matrix Service's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
What We Can Learn From Matrix Service's P/S?
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Matrix Service's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Matrix Service with six simple checks.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
