Take Care Before Jumping Onto Media Investment Optimization, S.A. (BME:MIO) Even Though It's 30% Cheaper

Explore Media Investment Optimization's Fair Values from the Community and select yours

To the annoyance of some shareholders, Media Investment Optimization, S.A. (BME:MIO) shares are down a considerable 30% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 57% share price decline.

After such a large drop in price, given about half the companies operating in Spain's Media industry have price-to-sales ratios (or "P/S") above 0.7x, you may consider Media Investment Optimization as an attractive investment with its 0.2x 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.

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See our latest analysis for Media Investment Optimization

How Has Media Investment Optimization Performed Recently?

Media Investment Optimization hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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.

Keen to find out how analysts think Media Investment Optimization's 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 Low P/S?

Media Investment Optimization's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 9.5% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 6.6% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue growth will be highly resilient over the next year growing by 22%. Meanwhile, the broader industry is forecast to contract by 0.6%, which would indicate the company is doing very well.

With this information, we find it very odd that Media Investment Optimization is trading at a P/S lower than the industry. It looks like most investors aren't convinced at all that the company can achieve positive future growth in the face of a shrinking broader industry.

The Key Takeaway

Media Investment Optimization's P/S has taken a dip along with its share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Media Investment Optimization's analyst forecasts has shown that it could be trading at a significant discount in terms of P/S, as it is expected to far outperform the industry. There could be some major unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. Amidst challenging industry conditions, a key concern is whether the company can sustain its superior revenue growth trajectory. So, the risk of a price drop looks to be subdued, but investors seem to think future revenue could see a lot of volatility.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Media Investment Optimization (2 are concerning!) that you should be aware of before investing here.

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.