Revenues Working Against Morguard Corporation's (TSE:MRC) Share Price

With a price-to-sales (or "P/S") ratio of 1.2x Morguard Corporation (TSE:MRC) may be sending bullish signals at the moment, given that almost half of all the Real Estate companies in Canada have P/S ratios greater than 2.8x and even P/S higher than 6x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Morguard

What Does Morguard's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Morguard's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Is There Any Revenue Growth Forecasted For Morguard?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.6%. Regardless, revenue has managed to lift by a handy 10% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 3.9% during the coming year according to the only analyst following the company. With the industry predicted to deliver 7.0% growth, that's a disappointing outcome.

In light of this, it's understandable that Morguard's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

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.

It's clear to see that Morguard maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Morguard's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Morguard that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.