Cautious Investors Not Rewarding Aecon Group Inc.'s (TSE:ARE) Performance Completely

Aecon Group Inc.'s (TSE:ARE) price-to-sales (or "P/S") ratio of 0.3x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Construction industry in Canada have P/S ratios greater than 1.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Aecon Group

What Does Aecon Group's P/S Mean For Shareholders?

Aecon Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Aecon Group'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, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 14%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should demonstrate the company's robustness, generating growth of 9.3% as estimated by the ten analysts watching the company. With the rest of the industry predicted to shrink by 1.6%, that would be a fantastic result.

With this information, we find it very odd that Aecon Group is trading at a P/S lower than the industry. It looks like most investors aren't convinced at all that the company can achieve positive future growth in the face of a shrinking broader industry.

What Does Aecon Group's P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Aecon Group's analyst forecasts has shown that it could be trading at a significant discount in terms of P/S, as it is expected to far outperform the industry. There could be some major unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. One major risk is whether its revenue trajectory can keep outperforming under these tough industry conditions. So, the risk of a price drop looks to be subdued, but investors seem to think future revenue could see a lot of volatility.

Before you settle on your opinion, we've discovered 1 warning sign for Aecon Group that you should be aware of.

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.