MLG Oz Limited's (ASX:MLG) price-to-sales (or "P/S") ratio of 0.2x might make it look like a strong buy right now compared to the Metals and Mining industry in Australia, where around half of the companies have P/S ratios above 98.5x and even P/S above 544x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
How Has MLG Oz Performed Recently?
With revenue growth that's inferior to most other companies of late, MLG Oz has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. 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.
Keen to find out how analysts think MLG Oz's future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, MLG Oz would need to produce anemic growth that's substantially trailing the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 32%. The latest three year period has also seen an excellent 84% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 13% per year over the next three years. With the industry predicted to deliver 278% growth per annum, the company is positioned for a weaker revenue result.
In light of this, it's understandable that MLG Oz's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Bottom Line On MLG Oz's P/S
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As expected, our analysis of MLG Oz's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
Plus, you should also learn about these 4 warning signs we've spotted with MLG Oz.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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.