Why Investors Shouldn't Be Surprised By The Artisanal Spirits Company plc's (LON:ART) Low P/S

The Artisanal Spirits Company plc's (LON:ART) price-to-sales (or "P/S") ratio of 1x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Beverage industry in the United Kingdom have P/S ratios greater than 1.7x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Check out our latest analysis for Artisanal Spirits

How Artisanal Spirits Has Been Performing

While the industry has experienced revenue growth lately, Artisanal Spirits' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Artisanal Spirits?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period was better as it's delivered a decent 15% overall rise in revenue. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 3.1% as estimated by the lone analyst watching the company. With the industry predicted to deliver 0.7% growth, that's a disappointing outcome.

In light of this, it's understandable that Artisanal Spirits' P/S would sit below the majority of other companies. 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.

The Bottom Line On Artisanal Spirits' P/S

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.

As we suspected, our examination of Artisanal Spirits' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Artisanal Spirits' poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Artisanal Spirits (2 shouldn't be ignored!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Artisanal Spirits, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.