Investors Don't See Light At End Of Amiad Water Systems Ltd.'s (TLV:AMD) Tunnel

When you see that almost half of the companies in the Machinery industry in Israel have price-to-sales ratios (or "P/S") above 1x, Amiad Water Systems Ltd. (TLV:AMD) looks to be giving off some buy signals with its 0.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Check out our latest analysis for Amiad Water Systems

How Amiad Water Systems Has Been Performing

Revenue has risen at a steady rate over the last year for Amiad Water Systems, which is generally not a bad outcome. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. If you 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Amiad Water Systems' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Amiad Water Systems?

In order to justify its P/S ratio, Amiad Water Systems would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.8%. The solid recent performance means it was also able to grow revenue by 11% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 14% shows it's noticeably less attractive.

With this information, we can see why Amiad Water Systems is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Amiad Water Systems' 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 we suspected, our examination of Amiad Water Systems revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Amiad Water Systems (of which 2 are potentially serious!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.