Take Care Before Jumping Onto Maggie Beer Holdings Limited (ASX:MBH) Even Though It's 32% Cheaper

Maggie Beer Holdings Limited (ASX:MBH) shareholders won't be pleased to see that the share price has had a very rough month, dropping 32% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 33% share price drop.

Since its price has dipped substantially, Maggie Beer Holdings may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Food industry in Australia have P/S ratios greater than 0.8x and even P/S higher than 3x are not unusual. 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 Maggie Beer Holdings

What Does Maggie Beer Holdings' P/S Mean For Shareholders?

We'd have to say that with no tangible growth over the last year, Maggie Beer Holdings' revenue has been unimpressive. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Maggie Beer Holdings' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Maggie Beer Holdings?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Maggie Beer Holdings' to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Although pleasingly revenue has lifted 213% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

When compared to the industry's one-year growth forecast of 11%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it odd that Maggie Beer Holdings is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Maggie Beer Holdings' P/S

Maggie Beer Holdings' recently weak share price has pulled its P/S back below other Food companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We're very surprised to see Maggie Beer Holdings currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Maggie Beer Holdings that you should be aware of.

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.

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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.