Melrose Industries PLC's (LON:MRO) Stock Retreats 26% But Revenues Haven't Escaped The Attention Of Investors

Melrose Industries PLC (LON:MRO) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 29% in that time.

Although its price has dipped substantially, it's still not a stretch to say that Melrose Industries' price-to-sales (or "P/S") ratio of 1.8x right now seems quite "middle-of-the-road" compared to the Aerospace & Defense industry in the United Kingdom, where the median P/S ratio is around 1.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Melrose Industries

What Does Melrose Industries' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Melrose Industries has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Melrose Industries' Revenue Growth Trending?

Melrose Industries' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.5%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 48% in total over the last three years. 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 analysts covering the company suggest revenue should grow by 7.1% each year over the next three years. With the industry predicted to deliver 9.0% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's understandable that Melrose Industries' P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Following Melrose Industries' share price tumble, its P/S is just clinging on to the industry median P/S. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've seen that Melrose Industries maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Melrose Industries 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.