Some Montrose Environmental Group, Inc. (NYSE:MEG) Shareholders Look For Exit As Shares Take 33% Pounding

Unfortunately for some shareholders, the Montrose Environmental Group, Inc. (NYSE:MEG) share price has dived 33% 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 28% in that time.

In spite of the heavy fall in price, it's still not a stretch to say that Montrose Environmental Group's price-to-sales (or "P/S") ratio of 1.4x right now seems quite "middle-of-the-road" compared to the Commercial Services industry in the United States, seeing as it matches the P/S ratio of the wider industry. 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.

See our latest analysis for Montrose Environmental Group

What Does Montrose Environmental Group's Recent Performance Look Like?

Montrose Environmental Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling 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.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Montrose Environmental Group would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 62% in total over the last three years. 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 14% per year as estimated by the six analysts watching the company. With the industry predicted to deliver 18% growth per year, the company is positioned for a weaker 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. 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.

What We Can Learn From Montrose Environmental Group's P/S?

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.

Our look at the analysts forecasts of Montrose Environmental Group's 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Montrose Environmental Group you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com