Mercury Systems, Inc. (NASDAQ:MRCY) Investors Are Less Pessimistic Than Expected

There wouldn't be many who think Mercury Systems, Inc.'s (NASDAQ:MRCY) price-to-sales (or "P/S") ratio of 2.9x is worth a mention when the median P/S for the Aerospace & Defense industry in the United States is similar at about 2.6x. 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.

View our latest analysis for Mercury Systems

What Does Mercury Systems' P/S Mean For Shareholders?

Mercury Systems hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Mercury Systems' Revenue Growth Trending?

Mercury Systems' 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.

Retrospectively, the last year delivered a frustrating 1.3% decrease to the company's top line. As a result, revenue from three years ago have also fallen 7.2% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 2.9% during the coming year according to the nine analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 6.6%, which is noticeably more attractive.

In light of this, it's curious that Mercury Systems' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at the analysts forecasts of Mercury Systems' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Mercury Systems with six simple checks.

If these risks are making you reconsider your opinion on Mercury Systems, 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.