Shareholders Should Be Pleased With Fleetwood Limited's (ASX:FWD) Price

With a median price-to-sales (or "P/S") ratio of close to 0.6x in the Consumer Durables industry in Australia, you could be forgiven for feeling indifferent about Fleetwood Limited's (ASX:FWD) P/S ratio of 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Fleetwood

How Has Fleetwood Performed Recently?

Fleetwood hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Fleetwood would need to produce growth that's similar to the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.0%. Regardless, revenue has managed to lift by a handy 26% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 3.5% per year during the coming three years according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 4.8% per annum, which is not materially different.

In light of this, it's understandable that Fleetwood's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

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

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.

A Fleetwood's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Consumer Durables industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Fleetwood with six simple checks will allow you to discover any risks that could be an issue.

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.