A Piece Of The Puzzle Missing From Imerys S.A.'s (EPA:NK) Share Price

There wouldn't be many who think Imerys S.A.'s (EPA:NK) price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S for the Basic Materials industry in France is similar at about 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Imerys

How Imerys Has Been Performing

Imerys could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Imerys' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 6.9% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 30% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to remain somewhat buoyant, growing by 3.7% during the coming year according to the five analysts following the company. This isn't typically strong growth, but with the rest of the industry predicted to shrink by 9.5%, that would be a solid result.

Even though the growth is only slight, it's peculiar that Imerys' P/S sits in line with the majority of other companies given the industry is set for a decline. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Imerys' analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You need to take note of risks, for example - Imerys has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.