Investors Give Molecular Energies PLC (LON:MEN) Shares A 53% Hiding

Molecular Energies PLC (LON:MEN) shareholders that were waiting for something to happen have been dealt a blow with a 53% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 70% loss during that time.

After such a large drop in price, Molecular Energies' price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Oil and Gas industry in the United Kingdom, where around half of the companies have P/S ratios above 1x and even P/S above 3x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Molecular Energies

What Does Molecular Energies' P/S Mean For Shareholders?

For example, consider that Molecular Energies' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Molecular Energies' earnings, revenue and cash flow.

How Is Molecular Energies' Revenue Growth Trending?

Molecular Energies' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.5%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

In contrast to the company, the rest of the industry is expected to decline by 0.9% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

With this information, we find it very odd that Molecular Energies is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What Does Molecular Energies' P/S Mean For Investors?

The southerly movements of Molecular Energies' shares means its P/S is now sitting at a pretty low level. 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.

Looking at the figures, it's surprising to see Molecular Energies currently trades on a much lower than expected P/S since its recent three-year revenue growth is beating forecasts for a struggling industry. One assumption would be that there are some underlying risks to revenue that are keeping the P/S from rising to match the its strong performance. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. While the chance of the share price dropping sharply is fairly remote, investors do seem to be anticipating future revenue instability.

It is also worth noting that we have found 2 warning signs for Molecular Energies that you need to take into consideration.

If you're unsure about the strength of Molecular Energies' 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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