Incitec Pivot Limited's (ASX:IPL) Business And Shares Still Trailing The Industry

You may think that with a price-to-sales (or "P/S") ratio of 1.1x Incitec Pivot Limited (ASX:IPL) is definitely a stock worth checking out, seeing as almost half of all the Chemicals companies in Australia have P/S ratios greater than 4.8x and even P/S above 24x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Incitec Pivot

How Has Incitec Pivot Performed Recently?

While the industry has experienced revenue growth lately, Incitec Pivot's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Incitec Pivot will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

Incitec Pivot's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than 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 12%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 36% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 0.8% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 530% each year, which is noticeably more attractive.

With this information, we can see why Incitec Pivot is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Incitec Pivot'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 expected, our analysis of Incitec Pivot's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for Incitec Pivot that we have uncovered.

If these risks are making you reconsider your opinion on Incitec Pivot, 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.