NAHL Group Plc's (LON:NAH) Shares Leap 30% Yet They're Still Not Telling The Full Story

Explore NAHL Group's Fair Values from the Community and select yours

Those holding NAHL Group Plc (LON:NAH) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 4.3% over the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about NAHL Group's P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Media industry in the United Kingdom is also close to 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for NAHL Group

How NAHL Group Has Been Performing

While the industry has experienced revenue growth lately, NAHL Group's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.0%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue growth will show minor resilience over the next year growing only by 1.4%. Meanwhile, the broader industry is forecast to contract by 3.0%, which would indicate the company is doing better than the majority of its peers.

Despite the marginal growth, we find it odd that NAHL Group is trading at a fairly similar P/S to the industry. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.

What We Can Learn From NAHL Group's P/S?

NAHL Group's 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.

Our examination of NAHL Group's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. Given the glowing revenue forecasts, we can only assume potential risks are what might be capping the P/S ratio at its current levels. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. It appears some are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for NAHL Group (1 is potentially serious!) that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.