A Piece Of The Puzzle Missing From Algonquin Power & Utilities Corp.'s (TSE:AQN) Share Price

Algonquin Power & Utilities Corp.'s (TSE:AQN) price-to-sales (or "P/S") ratio of 1.7x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Integrated Utilities industry in Canada have P/S ratios greater than 2.3x. 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 Algonquin Power & Utilities

How Algonquin Power & Utilities Has Been Performing

Recent times have been more advantageous for Algonquin Power & Utilities as its revenue hasn't fallen as much as the rest of the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. But at the very least, you'd be hoping that revenue doesn't fall off a cliff completely if your plan is to pick up some stock while it's out of favour.

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

How Is Algonquin Power & Utilities' Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Algonquin Power & Utilities' to be considered reasonable.

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 5.5%. Even so, admirably revenue has lifted 44% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 5.3% per year over the next three years. With the industry predicted to deliver 6.1% growth each year, the company is positioned for a comparable revenue result.

With this information, we find it odd that Algonquin Power & Utilities is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Algonquin Power & Utilities' P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It looks to us like the P/S figures for Algonquin Power & Utilities remain low despite growth that is expected to be in line with other companies in the industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Algonquin Power & Utilities that you need to be mindful of.

If you're unsure about the strength of Algonquin Power & Utilities' 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.