A Piece Of The Puzzle Missing From CMC Markets plc's (LON:CMCX) 39% Share Price Climb

Despite an already strong run, CMC Markets plc (LON:CMCX) shares have been powering on, with a gain of 39% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 46% in the last year.

Even after such a large jump in price, there still wouldn't be many who think CMC Markets' price-to-sales (or "P/S") ratio of 2.8x is worth a mention when the median P/S in the United Kingdom's Capital Markets industry is similar at about 2.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for CMC Markets

What Does CMC Markets' Recent Performance Look Like?

CMC Markets hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like CMC Markets' is when the company's growth is tracking the industry closely.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 17%. This means it has also seen a slide in revenue over the longer-term as revenue is down 32% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 22% during the coming year according to the four analysts following the company. That's shaping up to be materially higher than the 1.3% growth forecast for the broader industry.

With this information, we find it interesting that CMC Markets is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On CMC Markets' P/S

CMC Markets' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 established that CMC Markets currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 3 warning signs for CMC Markets that we have uncovered.

If you're unsure about the strength of CMC Markets' 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.