Yahoo Finance Optimistic Investors Push musicMagpie plc (LON:MMAG) Shares Up 28% But Growth Is Lacking
musicMagpie plc (LON:MMAG) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 28% in the last twelve months.
Even after such a large jump in price, there still wouldn't be many who think musicMagpie's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in the United Kingdom's Specialty Retail industry is similar at about 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for musicMagpie
What Does musicMagpie's Recent Performance Look Like?
musicMagpie hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on musicMagpie will help you uncover what's on the horizon.
Is There Some Revenue Growth Forecasted For musicMagpie?
In order to justify its P/S ratio, musicMagpie would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period was better as it's delivered a decent 14% overall rise in revenue. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.
Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 4.2% per year over the next three years. With the industry predicted to deliver 6.7% growth per annum, the company is positioned for a weaker revenue result.
With this information, we find it interesting that musicMagpie is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
What Does musicMagpie's P/S Mean For Investors?
musicMagpie appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.
Given that musicMagpie's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.
We don't want to rain on the parade too much, but we did also find 3 warning signs for musicMagpie (1 is significant!) that you need to be mindful of.
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.
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