With a median price-to-sales (or "P/S") ratio of close to 0.8x in the Food industry in the United States, you could be forgiven for feeling indifferent about Oatly Group AB's (NASDAQ:OTLY) P/S ratio, which comes in at about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Has Oatly Group Performed Recently?

Recent revenue growth for Oatly Group has been in line with the industry. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

Is There Some Revenue Growth Forecasted For Oatly Group?

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

Retrospectively, the last year delivered a decent 8.5% gain to the company's revenues. The latest three year period has also seen an excellent 86% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 8.0% per annum during the coming three years according to the seven analysts following the company. With the industry only predicted to deliver 2.8% per year, the company is positioned for a stronger revenue result.

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 Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Oatly Group currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Oatly Group, and understanding these should be part of your investment process.

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.