Pinning Down Mr. Cooper Group Inc.'s (NASDAQ:COOP) P/S Is Difficult Right Now
With a median price-to-sales (or "P/S") ratio of close to 2.4x in the Diversified Financial industry in the United States, you could be forgiven for feeling indifferent about Mr. Cooper Group Inc.'s (NASDAQ:COOP) P/S ratio of 1.9x. 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.
Check out our latest analysis for Mr. Cooper Group
How Has Mr. Cooper Group Performed Recently?
Mr. Cooper Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mr. Cooper Group.
What Are Revenue Growth Metrics Telling Us About The P/S?
Mr. Cooper Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Retrospectively, the last year delivered a frustrating 44% decrease to the company's top line. As a result, revenue from three years ago have also fallen 14% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 3.7% as estimated by the five analysts watching the company. With the industry predicted to deliver 8.2% growth, that's a disappointing outcome.
With this in consideration, we think it doesn't make sense that Mr. Cooper Group's P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.
The Key Takeaway
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
It appears that Mr. Cooper Group currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Mr. Cooper Group, and understanding these should be part of your investment process.
If you're unsure about the strength of Mr. Cooper Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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.
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