With A 34% Price Drop For MongoDB, Inc. (NASDAQ:MDB) You'll Still Get What You Pay For

MongoDB, Inc. (NASDAQ:MDB) shareholders won't be pleased to see that the share price has had a very rough month, dropping 34% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 51% share price decline.

In spite of the heavy fall in price, when almost half of the companies in the United States' IT industry have price-to-sales ratios (or "P/S") below 2.7x, you may still consider MongoDB as a stock not worth researching with its 7.1x P/S ratio. 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 MongoDB

How MongoDB Has Been Performing

MongoDB could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on MongoDB.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as MongoDB's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 130% in total over the last three years. 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 16% each year during the coming three years according to the analysts following the company. With the industry only predicted to deliver 11% each year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why MongoDB's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

Even after such a strong price drop, MongoDB's P/S still exceeds the industry median significantly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that MongoDB maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the IT industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It is also worth noting that we have found 2 warning signs for MongoDB that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.