Market Might Still Lack Some Conviction On Oliver's Real Food Limited (ASX:OLI) Even After 50% Share Price Boost

Oliver's Real Food Limited (ASX:OLI) shares have had a really impressive month, gaining 50% after a shaky period beforehand. But the last month did very little to improve the 54% share price decline over the last year.

In spite of the firm bounce in price, when close to half the companies operating in Australia's Hospitality industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider Oliver's Real Food as an enticing stock to check out with its 0.1x 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 limited.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Check out our latest analysis for Oliver's Real Food

What Does Oliver's Real Food's P/S Mean For Shareholders?

The recent revenue growth at Oliver's Real Food would have to be considered satisfactory if not spectacular. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for Oliver's Real Food, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Oliver's Real Food?

The only time you'd be truly comfortable seeing a P/S as low as Oliver's Real Food's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.5% last year. Revenue has also lifted 14% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 1.5% shows it's a great look while it lasts.

With this information, we find it very odd that Oliver's Real Food is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

The Bottom Line On Oliver's Real Food's P/S

The latest share price surge wasn't enough to lift Oliver's Real Food's P/S close to the industry median. 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.

Looking at the figures, it's surprising to see Oliver's Real Food currently trades on a much lower than expected P/S since its recent three-year revenue growth is beating forecasts for a struggling industry. We think potential risks might be placing significant pressure on the P/S ratio and share price. The most obvious risk is that its revenue trajectory may not keep outperforming under these tough industry conditions. While the chance of the share price dropping sharply is fairly remote, investors do seem to be anticipating future revenue instability.

Before you settle on your opinion, we've discovered 5 warning signs for Oliver's Real Food (4 are significant!) that you should be aware of.

If these risks are making you reconsider your opinion on Oliver's Real Food, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.