Revenues Working Against Formosa Chemicals & Fibre Corporation's (TWSE:1326) Share Price

Formosa Chemicals & Fibre Corporation's (TWSE:1326) 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 Taiwan, where around half of the companies have P/S ratios above 1.7x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Formosa Chemicals & Fibre

What Does Formosa Chemicals & Fibre's P/S Mean For Shareholders?

There hasn't been much to differentiate Formosa Chemicals & Fibre's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Formosa Chemicals & Fibre.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Formosa Chemicals & Fibre would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.0% last year. The latest three year period has also seen a 13% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 1.9% during the coming year according to the eleven analysts following the company. With the industry predicted to deliver 8.6% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Formosa Chemicals & Fibre 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.

The Bottom Line On Formosa Chemicals & Fibre's P/S

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.

As expected, our analysis of Formosa Chemicals & Fibre's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. 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.

Before you take the next step, you should know about the 1 warning sign for Formosa Chemicals & Fibre that we have uncovered.

If these risks are making you reconsider your opinion on Formosa Chemicals & Fibre, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.