Potential Upside For MTN Group Limited (JSE:MTN) Not Without Risk

MTN Group Limited's (JSE:MTN) price-to-sales (or "P/S") ratio of 0.7x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Wireless Telecom industry in South Africa have P/S ratios greater than 1.6x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for MTN Group

How MTN Group Has Been Performing

Recent times haven't been great for MTN Group as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on MTN Group will help you uncover what's on the horizon.

How Is MTN Group's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like MTN Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 6.9%. The solid recent performance means it was also able to grow revenue by 23% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 3.6% per year over the next three years. That's shaping up to be similar to the 5.0% per annum growth forecast for the broader industry.

In light of this, it's peculiar that MTN Group's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of MTN Group's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for MTN Group that you should be aware of.

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.