Merit Group plc's (LON:MRIT) Price In Tune With Revenues

With a median price-to-sales (or "P/S") ratio of close to 1x in the Media industry in the United Kingdom, you could be forgiven for feeling indifferent about Merit Group plc's (LON:MRIT) P/S ratio of 0.7x. 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.

Check out our latest analysis for Merit Group

What Does Merit Group's P/S Mean For Shareholders?

Merit Group could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Is There Some Revenue Growth Forecasted For Merit Group?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Merit Group's to be considered reasonable.

Retrospectively, the last year delivered a decent 8.2% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 24% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 7.8% during the coming year according to the only analyst following the company. That's shaping up to be similar to the 8.2% growth forecast for the broader industry.

With this information, we can see why Merit Group is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

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.

Our look at Merit Group's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Merit Group that you need to be mindful of.

If these risks are making you reconsider your opinion on Merit Group, 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.