Why Investors Shouldn't Be Surprised By MiniLuxe Holding Corp.'s (CVE:MNLX) 233% Share Price Surge

MiniLuxe Holding Corp. (CVE:MNLX) shares have had a really impressive month, gaining 233% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 46%.

After such a large jump in price, given close to half the companies operating in Canada's Consumer Services industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider MiniLuxe Holding as a stock to potentially avoid with its 2.8x 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 MiniLuxe Holding

What Does MiniLuxe Holding's Recent Performance Look Like?

The revenue growth achieved at MiniLuxe Holding over the last year would be more than acceptable for most companies. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 MiniLuxe Holding's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For MiniLuxe Holding?

The only time you'd be truly comfortable seeing a P/S as high as MiniLuxe Holding's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. The latest three year period has also seen an excellent 126% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

In light of this, it's understandable that MiniLuxe Holding's P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does MiniLuxe Holding's P/S Mean For Investors?

MiniLuxe Holding shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

We've established that MiniLuxe Holding maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Having said that, be aware MiniLuxe Holding is showing 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant.

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.