MediaAlpha, Inc. (NYSE:MAX) Stock's 26% Dive Might Signal An Opportunity But It Requires Some Scrutiny

MediaAlpha, Inc. (NYSE:MAX) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 34% share price drop.

After such a large drop in price, MediaAlpha may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1x, considering almost half of all companies in the Interactive Media and Services industry in the United States have P/S ratios greater than 1.6x and even P/S higher than 4x 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 MediaAlpha

How Has MediaAlpha Performed Recently?

MediaAlpha could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited 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 MediaAlpha.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as MediaAlpha's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 13% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should generate growth of 22% each year as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 10% per year growth forecast for the broader industry.

With this in consideration, we find it intriguing that MediaAlpha's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From MediaAlpha's P/S?

MediaAlpha's recently weak share price has pulled its P/S back below other Interactive Media and Services companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

A look at MediaAlpha's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for MediaAlpha you should be aware of, and 1 of them is a bit unpleasant.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.