The Mission Group plc (LON:TMG) Surges 29% Yet Its Low P/S Is No Reason For Excitement

The Mission Group plc (LON:TMG) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 31% in the last year.

Even after such a large jump in price, when close to half the companies operating in the United Kingdom's Media industry have price-to-sales ratios (or "P/S") above 0.8x, you may still consider Mission Group as an enticing stock to check out with its 0.1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Mission Group

How Has Mission Group Performed Recently?

With revenue growth that's inferior to most other companies of late, Mission Group has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

How Is Mission Group's Revenue Growth Trending?

In order to justify its P/S ratio, Mission Group would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow revenue by an impressive 48% in total over the last three years. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Turning to the outlook, the next year should bring plunging returns, with revenue decreasing 52% as estimated by the lone analyst watching the company. With the rest of the industry predicted to shrink by 4.1%, it's a sub-optimal result.

With this information, it's not too hard to see why Mission Group is trading at a lower P/S in comparison. Nonetheless, with revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Mission Group's P/S Mean For Investors?

Mission Group's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of Mission Group's analyst forecasts revealed that its even shakier outlook against the industry is contributing factor to why its P/S is so low. With such a gloomy outlook, investors feel the potential for an improvement in revenue isn't great enough to justify paying a premium resulting in a higher P/S ratio. Typically when industry conditions are tough, there's a real risk of company revenues sliding further, which is a concern of ours in this case. In the meantime, unless the company's prospects improve they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for Mission Group you should be aware 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.