A Piece Of The Puzzle Missing From Made Tech Group Plc's (LON:MTEC) 30% Share Price Climb

Despite an already strong run, Made Tech Group Plc (LON:MTEC) shares have been powering on, with a gain of 30% in the last thirty days. The annual gain comes to 112% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, it's still not a stretch to say that Made Tech Group's price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" compared to the IT industry in the United Kingdom, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Made Tech Group

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

There hasn't been much to differentiate Made Tech Group's and the industry's revenue growth lately. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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

How Is Made Tech Group's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 6.2%. Pleasingly, revenue has also lifted 106% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 17% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 8.5%, which is noticeably less attractive.

In light of this, it's curious that Made Tech Group's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Made Tech Group's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Looking at Made Tech Group's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Made Tech Group you should know about.

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.