Grupo Média Capital, SGPS, S.A.'s (ELI:MCP) 26% Share Price Surge Not Quite Adding Up

Despite an already strong run, Grupo Média Capital, SGPS, S.A. (ELI:MCP) shares have been powering on, with a gain of 26% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 16% is also fairly reasonable.

Although its price has surged higher, there still wouldn't be many who think Grupo Média Capital SGPS' price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S in Portugal's Media industry is similar at about 0.7x. 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.

Check out our latest analysis for Grupo Média Capital SGPS

What Does Grupo Média Capital SGPS' Recent Performance Look Like?

The revenue growth achieved at Grupo Média Capital SGPS over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Grupo Média Capital SGPS, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Grupo Média Capital SGPS' Revenue Growth Trending?

Grupo Média Capital SGPS' 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 growth, the company posted a worthy increase of 9.9%. Revenue has also lifted 10% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 7.3% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Grupo Média Capital SGPS' P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Its shares have lifted substantially and now Grupo Média Capital SGPS' P/S is back within range of the industry median. 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.

We've established that Grupo Média Capital SGPS' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Grupo Média Capital SGPS that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.