Universal Technical Institute, Inc. (NYSE:UTI) Screens Well But There Might Be A Catch

It's not a stretch to say that Universal Technical Institute, Inc.'s (NYSE:UTI) price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" for companies in the Consumer Services industry in the United States, where the median P/S ratio is around 1.5x. 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.

See our latest analysis for Universal Technical Institute

What Does Universal Technical Institute's P/S Mean For Shareholders?

Recent times have been advantageous for Universal Technical Institute 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 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 Universal Technical Institute.

Is There Some Revenue Growth Forecasted For Universal Technical Institute?

The only time you'd be comfortable seeing a P/S like Universal Technical Institute's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 45%. Pleasingly, revenue has also lifted 102% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 17% during the coming year according to the four analysts following the company. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Universal Technical Institute 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.

The Final Word

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 Universal Technical Institute currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Universal Technical Institute (of which 1 shouldn't be ignored!) you should know about.

If you're unsure about the strength of Universal Technical Institute's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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

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.