Meriaura Group Oyj's (STO:MERIS) Shares Not Telling The Full Story

Meriaura Group Oyj's (STO:MERIS) price-to-sales (or "P/S") ratio of 1.2x might make it look like a buy right now compared to the Electrical industry in Sweden, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Meriaura Group Oyj

How Has Meriaura Group Oyj Performed Recently?

Meriaura Group Oyj certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Meriaura Group Oyj's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 28% per year as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 10% each year, which is noticeably less attractive.

With this in consideration, we find it intriguing that Meriaura Group Oyj's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

A look at Meriaura Group Oyj's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Meriaura Group Oyj (1 shouldn't be ignored) you should be aware of.

If you're unsure about the strength of Meriaura Group Oyj's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.