Why Investors Shouldn't Be Surprised By Metsä Board Oyj's (HEL:METSB) P/S

When close to half the companies in the Packaging industry in Finland have price-to-sales ratios (or "P/S") below 0.6x, you may consider Metsä Board Oyj (HEL:METSB) as a stock to potentially avoid with its 1.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Metsä Board Oyj

What Does Metsä Board Oyj's Recent Performance Look Like?

With revenue that's retreating more than the industry's average of late, Metsä Board Oyj has been very sluggish. Perhaps the market is predicting a change in fortunes for the company and is expecting them to blow past the rest of the industry, elevating the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Metsä Board Oyj's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. As a result, revenue from three years ago have also fallen 4.8% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 9.9% each year during the coming three years according to the six analysts following the company. That's shaping up to be materially higher than the 4.3% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Metsä Board Oyj's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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 Metsä Board Oyj shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Metsä Board Oyj (1 is a bit concerning!) 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.