Mattel, Inc.'s (NASDAQ:MAT) P/S Is On The Mark

It's not a stretch to say that Mattel, Inc.'s (NASDAQ:MAT) price-to-sales (or "P/S") ratio of 1.2x right now seems quite "middle-of-the-road" for companies in the Leisure industry in the United States, where the median P/S ratio is around 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Mattel

How Mattel Has Been Performing

Mattel certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

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

If we review the last year of revenue growth, the company posted a worthy increase of 2.5%. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 2.6% per annum as estimated by the analysts watching the company. That's shaping up to be similar to the 3.1% per annum growth forecast for the broader industry.

With this in mind, it makes sense that Mattel's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Mattel's P/S

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 Mattel's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

It is also worth noting that we have found 1 warning sign for Mattel that you need to take into consideration.

If you're unsure about the strength of Mattel'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.