Montrose Environmental Group, Inc. (NYSE:MEG) Might Not Be As Mispriced As It Looks After Plunging 27%

Unfortunately for some shareholders, the Montrose Environmental Group, Inc. (NYSE:MEG) share price has dived 27% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 24% in that time.

Although its price has dipped substantially, it's still not a stretch to say that Montrose Environmental Group's price-to-sales (or "P/S") ratio of 1.1x right now seems quite "middle-of-the-road" compared to the Commercial Services industry in the United States, where the median P/S ratio is around 1.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Montrose Environmental Group

What Does Montrose Environmental Group's P/S Mean For Shareholders?

Recent times have been advantageous for Montrose Environmental Group as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is Montrose Environmental Group's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Montrose Environmental Group's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 18% last year. Pleasingly, revenue has also lifted 43% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 13% each year during the coming three years according to the seven analysts following the company. With the industry only predicted to deliver 9.4% per year, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Montrose Environmental Group is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does Montrose Environmental Group's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Montrose Environmental Group looks to be in line with the rest of the Commercial Services industry. 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 Montrose Environmental Group currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Montrose Environmental Group that you need to be mindful of.

If you're unsure about the strength of Montrose Environmental Group'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.