Mad Paws Holdings Limited's (ASX:MPA) P/S Still Appears To Be Reasonable

When close to half the companies in the Consumer Services industry in Australia have price-to-sales ratios (or "P/S") below 1x, you may consider Mad Paws Holdings Limited (ASX:MPA) as a stock to potentially avoid with its 1.9x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Mad Paws Holdings

What Does Mad Paws Holdings' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Mad Paws Holdings has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Mad Paws Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Mad Paws Holdings would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 63% as estimated by the one analyst watching the company. With the industry only predicted to deliver 16%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Mad Paws Holdings' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Mad Paws Holdings' 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.

As we suspected, our examination of Mad Paws Holdings' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Mad Paws Holdings has 3 warning signs we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.