The Market Doesn't Like What It Sees From Yara International ASA's (OB:YAR) Revenues Yet

Yara International ASA's (OB:YAR) price-to-sales (or "P/S") ratio of 0.6x might make it look like a buy right now compared to the Chemicals industry in Norway, where around half of the companies have P/S ratios above 2.5x and even P/S above 43x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 1 warning sign investors should be aware of before investing in Yara International. Read for free now.

Check out our latest analysis for Yara International

What Does Yara International's P/S Mean For Shareholders?

With revenue that's retreating more than the industry's average of late, Yara International has been very sluggish. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.4%. As a result, revenue from three years ago have also fallen 27% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 2.3% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 53% per year, which is noticeably more attractive.

With this information, we can see why Yara International is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Yara International's P/S Mean For Investors?

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.

We've established that Yara International maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Yara International you should be aware 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).

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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.