With A 47% Price Drop For Next 15 Group plc (LON:NFG) You'll Still Get What You Pay For

The Next 15 Group plc (LON:NFG) share price has fared very poorly over the last month, falling by a substantial 47%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Next 15 Group's P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Media industry in the United Kingdom is also close to 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Next 15 Group

How Has Next 15 Group Performed Recently?

Next 15 Group could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Next 15 Group.

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

Next 15 Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Although pleasingly revenue has lifted 127% in aggregate from three years ago, notwithstanding the last 12 months. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Looking ahead now, revenue is anticipated to slump, contracting by 2.7% each year during the coming three years according to the six analysts following the company. With the rest of the industry predicted to shrink by 2.7% each year, it's set to post a similar result.

With this information, it's not too hard to see why Next 15 Group is trading at a fairly similar P/S in comparison. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There is still potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth.

The Final Word

With its share price dropping off a cliff, the P/S for Next 15 Group looks to be in line with the rest of the Media industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our findings align with our suspicions - a closer look at Next 15 Group's analyst forecasts shows that the company's similarly unstable outlook compared to the industry is keeping its price-to-sales ratio in line with the industry's average. Right now shareholders are comfortable with the P/S as they are confident future revenue won't throw up any further unpleasant surprises. However, we're slightly cautious about the company's ability to resist further pain to its business from the broader industry turmoil. It seems that unless there's a drastic change, it's hard to imagine that the share price will deviate much from current levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Next 15 Group (1 can't be ignored!) that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.