It's not a stretch to say that Oatly Group AB's (NASDAQ:OTLY) price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" for companies in the Food industry in the United States, where the median P/S ratio is around 0.9x. 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.

How Has Oatly Group Performed Recently?

Recent revenue growth for Oatly Group has been in line with the industry. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. Those who are bullish on Oatly Group will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

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Do Revenue Forecasts Match The P/S Ratio?

Oatly Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 3.0% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 50% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 7.4% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 3.1% each year, which is noticeably less attractive.

With this in consideration, we find it intriguing that Oatly Group's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

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.

Looking at Oatly Group's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Oatly Group is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Oatly 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.