Marston's PLC's (LON:MARS) Shares Bounce 28% But Its Business Still Trails The Industry

Marston's PLC (LON:MARS) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 28%.

Although its price has surged higher, when close to half the companies operating in the United Kingdom's Hospitality industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Marston's as an enticing stock to check out with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Marston's

How Has Marston's Performed Recently?

With revenue growth that's inferior to most other companies of late, Marston's has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Marston's.

How Is Marston's' Revenue Growth Trending?

In order to justify its P/S ratio, Marston's would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 3.1% gain to the company's revenues. Pleasingly, revenue has also lifted 124% 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.

Turning to the outlook, the next three years should generate growth of 2.8% per year as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 7.2% per year growth forecast for the broader industry.

In light of this, it's understandable that Marston's' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Marston's' P/S Mean For Investors?

The latest share price surge wasn't enough to lift Marston's' P/S close to 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.

As expected, our analysis of Marston's' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Marston's (of which 1 can't be ignored!) you should know about.

If these risks are making you reconsider your opinion on Marston's, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.