Why Investors Shouldn't Be Surprised By Modern Times Group MTG AB's (STO:MTG B) 28% Share Price Surge

Modern Times Group MTG AB (STO:MTG B) shares have continued their recent momentum with a 28% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 62% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Modern Times Group MTG is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.4x, considering almost half the companies in Sweden's Entertainment industry have P/S ratios below 0.7x. 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.

View our latest analysis for Modern Times Group MTG

How Has Modern Times Group MTG Performed Recently?

Recent times have been pleasing for Modern Times Group MTG as its revenue has risen in spite of the industry's average revenue going into reverse. It seems that many are expecting the company to continue defying the broader industry adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 3.2% last year. Pleasingly, revenue has also lifted 53% 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.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 32% each year over the next three years. That's shaping up to be materially higher than the 19% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Modern Times Group MTG's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Modern Times Group MTG's P/S

Modern Times Group MTG's P/S is on the rise since its shares have risen strongly. 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.

We've established that Modern Times Group MTG maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Entertainment industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Modern Times Group MTG, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Modern Times Group MTG, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.