Market Participants Recognise AGC Inc.'s (TSE:5201) Revenues

There wouldn't be many who think AGC Inc.'s (TSE:5201) price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S for the Building industry in Japan is similar at about 0.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for AGC

How AGC Has Been Performing

AGC hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on AGC will help you uncover what's on the horizon.

How Is AGC's Revenue Growth Trending?

In order to justify its P/S ratio, AGC would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 1.2% decrease to the company's top line. Even so, admirably revenue has lifted 40% 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 nine analysts covering the company suggest revenue should grow by 4.8% per year over the next three years. With the industry predicted to deliver 4.5% growth per year, the company is positioned for a comparable revenue result.

With this in mind, it makes sense that AGC's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

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.

A AGC's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Building industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with AGC, and understanding should be part of your investment process.

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.