United Utilities Group PLC's (LON:UU.) Shares May Have Run Too Fast Too Soon

United Utilities Group PLC's (LON:UU.) price-to-sales (or "P/S") ratio of 3.7x may not look like an appealing investment opportunity when you consider close to half the companies in the Water Utilities industry in the United Kingdom have P/S ratios below 1.8x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for United Utilities Group

What Does United Utilities Group's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, United Utilities Group has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on United Utilities Group will help you uncover what's on the horizon.

How Is United Utilities Group's Revenue Growth Trending?

In order to justify its P/S ratio, United Utilities Group would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. That's essentially a continuation of what we've seen over the last three years, as its revenue growth has been virtually non-existent for that entire period. Therefore, it's fair to say that revenue growth has definitely eluded the company recently.

Turning to the outlook, the next three years should generate growth of 8.0% per annum as estimated by the twelve analysts watching the company. With the industry predicted to deliver 7.0% growth per year, the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that United Utilities Group's P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Bottom Line On United Utilities Group's P/S

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.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that United Utilities Group currently trades on a higher than expected P/S. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Before you settle on your opinion, we've discovered 4 warning signs for United Utilities Group that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.