Not Many Are Piling Into Montrose Environmental Group, Inc. (NYSE:MEG) Stock Yet As It Plummets 32%

Unfortunately for some shareholders, the Montrose Environmental Group, Inc. (NYSE:MEG) share price has dived 32% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 42% share price drop.

After such a large drop in price, Montrose Environmental Group may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.9x, considering almost half of all companies in the Commercial Services industry in the United States have P/S ratios greater than 1.5x and even P/S higher than 5x aren't out of the ordinary. 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 Montrose Environmental Group

How Montrose Environmental Group Has Been Performing

Recent times have been advantageous for Montrose Environmental Group as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Montrose Environmental Group.

Is There Any Revenue Growth Forecasted For Montrose Environmental Group?

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

If we review the last year of revenue growth, the company posted a worthy increase of 13%. The latest three year period has also seen an excellent 32% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 12% per annum during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 8.4% per annum growth forecast for the broader industry.

With this information, we find it odd that Montrose Environmental Group is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Montrose Environmental Group's P/S has taken a dip along with its share price. 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.

To us, it seems Montrose Environmental Group currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Before you take the next step, you should know about the 4 warning signs for Montrose Environmental Group that we have uncovered.

If these risks are making you reconsider your opinion on Montrose Environmental Group, 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.