Maui Land & Pineapple Company, Inc. (NYSE:MLP) Investors Are Less Pessimistic Than Expected

You may think that with a price-to-sales (or "P/S") ratio of 22x Maui Land & Pineapple Company, Inc. (NYSE:MLP) is a stock to avoid completely, seeing as almost half of all the Real Estate companies in the United States have P/S ratios under 3.1x and even P/S lower than 1x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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View our latest analysis for Maui Land & Pineapple Company

How Maui Land & Pineapple Company Has Been Performing

Maui Land & Pineapple Company certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Maui Land & Pineapple Company's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Maui Land & Pineapple Company?

In order to justify its P/S ratio, Maui Land & Pineapple Company would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 75% gain to the company's top line. Still, revenue has fallen 22% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's an unpleasant look.

With this in mind, we find it worrying that Maui Land & Pineapple Company's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Final Word

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Maui Land & Pineapple Company revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Maui Land & Pineapple Company, and understanding should be part of your investment process.

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.