It's not a stretch to say that Mercer International Inc.'s (NASDAQ:MERC) price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" for companies in the Forestry industry in the United States, where the median P/S ratio is around 0.4x.  Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.    

NasdaqGS:MERC Price to Sales Ratio vs Industry May 23rd 2024

How Mercer International Has Been Performing

Mercer International has been doing a reasonable job lately as its revenue hasn't declined as much as most other companies.   It might be that many expect the comparatively superior revenue performance to vanish, which has kept the P/S from rising.  If you still like the company, you'd want its revenue trajectory to turn around before making any decisions.  But at the very least, you'd be hoping the company doesn't fall back into the pack if your plan is to pick up some stock while it's not in favour.    

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

How Is Mercer International's Revenue Growth Trending?  

There's an inherent assumption that a company should be matching the industry for P/S ratios like Mercer International's to be considered reasonable.  

Retrospectively, the last year delivered a frustrating 8.4% decrease to the company's top line.   Even so, admirably revenue has lifted 36% in aggregate from three years ago, notwithstanding the last 12 months.  Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.  

Turning to the outlook, the next year should generate growth of 4.2%  as estimated by the dual analysts watching the company.  With the industry predicted to deliver 6.0% growth , the company is positioned for a comparable revenue result.

In light of this, it's understandable that Mercer International's P/S sits in line with the majority of other companies.  It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.  

The Bottom Line On Mercer International's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

A Mercer International's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Forestry industry.  At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction.  Unless these conditions change, they will continue to support the share price at these levels.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Mercer International that you need to be mindful of.  

If you're unsure about the strength of Mercer International's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.