MNTN, Inc.'s (NYSE:MNTN) Stock Retreats 25% But Revenues Haven't Escaped The Attention Of Investors

To the annoyance of some shareholders, MNTN, Inc. (NYSE:MNTN) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Although its price has dipped substantially, you could still be forgiven for thinking MNTN is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 3.7x, considering almost half the companies in the United States' Media industry have P/S ratios below 1.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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What Does MNTN's Recent Performance Look Like?

MNTN certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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Is There Enough Revenue Growth Forecasted For MNTN?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like MNTN's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 31%. The strong recent performance means it was also able to grow revenue by 103% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 22% as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 3.0% growth forecast for the broader industry.

In light of this, it's understandable that MNTN's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does MNTN's P/S Mean For Investors?

Even after such a strong price drop, MNTN's P/S still exceeds the industry median significantly. 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 MNTN maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Media industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

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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.