Some Confidence Is Lacking In OCI N.V.'s (AMS:OCI) P/S

When close to half the companies in the Chemicals industry in the Netherlands have price-to-sales ratios (or "P/S") below 0.9x, you may consider OCI N.V. (AMS:OCI) as a stock to potentially avoid with its 2.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for OCI

What Does OCI's Recent Performance Look Like?

OCI could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. 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 OCI will help you uncover what's on the horizon.

How Is OCI's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as OCI's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a decent 4.5% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 48% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 4.0% per annum during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 89% per year, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that OCI's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On OCI's P/S

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.

It comes as a surprise to see OCI trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

We don't want to rain on the parade too much, but we did also find 1 warning sign for OCI that you need to be mindful of.

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).

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.

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