Investors Appear Satisfied With Ocado Group plc's (LON:OCDO) Prospects As Shares Rocket 34%

Ocado Group plc (LON:OCDO) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 18% in the last twelve months.

After such a large jump in price, given close to half the companies operating in the United Kingdom's Consumer Retailing industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider Ocado Group as a stock to potentially avoid with its 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 as high as it is.

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View our latest analysis for Ocado Group

How Has Ocado Group Performed Recently?

With revenue that's retreating more than the industry's average of late, Ocado Group has been very sluggish. It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Ocado Group will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Ocado Group?

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

Retrospectively, the last year delivered a frustrating 57% decrease to the company's top line. As a result, revenue from three years ago have also fallen 47% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 49% per year as estimated by the eight analysts watching the company. With the industry only predicted to deliver 7.1% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Ocado Group'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.

What We Can Learn From Ocado Group's P/S?

Ocado Group's P/S is on the rise since its shares have risen strongly. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Ocado Group's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Ocado Group.

If you're unsure about the strength of Ocado Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.