There's Reason For Concern Over ArcelorMittal S.A.'s (AMS:MT) Massive 29% Price Jump

ArcelorMittal S.A. (AMS:MT) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 4.5% isn't as impressive.

Although its price has surged higher, there still wouldn't be many who think ArcelorMittal's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in the Netherlands' Metals and Mining industry is similar at about 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for ArcelorMittal

What Does ArcelorMittal's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, ArcelorMittal's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For ArcelorMittal?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. The last three years don't look nice either as the company has shrunk revenue by 11% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 1.8% per year as estimated by the analysts watching the company. With the industry predicted to deliver 4.0% growth per annum, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that ArcelorMittal's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From ArcelorMittal's P/S?

Its shares have lifted substantially and now ArcelorMittal's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Given that ArcelorMittal's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for ArcelorMittal that you should be aware of.

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.