Unfortunately for some shareholders, the Montrose Environmental Group, Inc. (NYSE:MEG) share price has dived 28% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 51% share price decline.

Following the heavy fall in price, Montrose Environmental Group may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.8x, considering almost half of all companies in the Commercial Services industry in the United States have P/S ratios greater than 1.4x and even P/S higher than 5x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Montrose Environmental Group's P/S Mean For Shareholders?

Recent times have been advantageous for Montrose Environmental Group as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Montrose Environmental Group's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. Pleasingly, revenue has also lifted 32% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 12% each year over the next three years. With the industry only predicted to deliver 8.4% per year, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Montrose Environmental Group's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Montrose Environmental Group's P/S?

Montrose Environmental Group's recently weak share price has pulled its P/S back below other Commercial Services companies. 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.

Montrose Environmental Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Before you settle on your opinion, we've discovered 4 warning signs for Montrose Environmental Group that you should be aware of.

If these risks are making you reconsider your opinion on Montrose Environmental Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.