Mentice AB (publ)'s (STO:MNTC) Stock Retreats 26% But Revenues Haven't Escaped The Attention Of Investors

Mentice AB (publ) (STO:MNTC) shares have had a horrible month, losing 26% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 32% in that time.

In spite of the heavy fall in price, when almost half of the companies in Sweden's Healthcare Services industry have price-to-sales ratios (or "P/S") below 1.6x, you may still consider Mentice as a stock probably not worth researching with its 2.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Mentice

How Mentice Has Been Performing

Recent times haven't been great for Mentice as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Mentice's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Mentice's Revenue Growth Trending?

In order to justify its P/S ratio, Mentice would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 6.5%. Pleasingly, revenue has also lifted 77% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 21% per annum during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 9.0% each year growth forecast for the broader industry.

With this information, we can see why Mentice is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

Despite the recent share price weakness, Mentice's P/S remains higher than most other companies in the industry. 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.

As we suspected, our examination of Mentice's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

Having said that, be aware Mentice is showing 1 warning sign in our investment analysis, you should know about.

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.