Mitchells & Butlers plc's (LON:MAB) 27% Price Boost Is Out Of Tune With Revenues

Mitchells & Butlers plc (LON:MAB) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 48%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Mitchells & Butlers' P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in the United Kingdom is also close to 1.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Mitchells & Butlers

How Has Mitchells & Butlers Performed Recently?

With revenue growth that's inferior to most other companies of late, Mitchells & Butlers has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Mitchells & Butlers?

Mitchells & Butlers' 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.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Pleasingly, revenue has also lifted 300% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 2.0% during the coming year according to the ten analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 9.2%, which is noticeably more attractive.

In light of this, it's curious that Mitchells & Butlers' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Mitchells & Butlers' P/S Mean For Investors?

Its shares have lifted substantially and now Mitchells & Butlers' P/S is back within range of the industry median. 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.

Our look at the analysts forecasts of Mitchells & Butlers' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Mitchells & Butlers (1 is potentially serious) you should be aware of.

If you're unsure about the strength of Mitchells & Butlers' 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.