Dyno Nobel Limited's (ASX:DNL) Low P/S No Reason For Excitement

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Dyno Nobel Limited's (ASX:DNL) price-to-sales (or "P/S") ratio of 1x might make it look like a buy right now compared to the Chemicals industry in Australia, where around half of the companies have P/S ratios above 2x and even P/S above 11x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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See our latest analysis for Dyno Nobel

What Does Dyno Nobel's P/S Mean For Shareholders?

There hasn't been much to differentiate Dyno Nobel's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Keen to find out how analysts think Dyno Nobel's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Dyno Nobel's Revenue Growth Trending?

Dyno Nobel's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. Revenue has also lifted 9.2% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue growth is heading into negative territory, declining 12% each year over the next three years. Meanwhile, the broader industry is forecast to expand by 4.4% per year, which paints a poor picture.

With this information, we are not surprised that Dyno Nobel is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Dyno Nobel'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.

As we suspected, our examination of Dyno Nobel's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Dyno Nobel that you should be aware of.

If you're unsure about the strength of Dyno Nobel'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.