Revenues Working Against AUO Corporation's (TWSE:2409) Share Price

You may think that with a price-to-sales (or "P/S") ratio of 0.4x AUO Corporation (TWSE:2409) is a stock worth checking out, seeing as almost half of all the Electronic companies in Taiwan have P/S ratios greater than 1.8x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for AUO

What Does AUO's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, AUO has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think AUO'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?

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

Retrospectively, the last year delivered an exceptional 16% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 23% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 7.1% as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 19%, which is noticeably more attractive.

In light of this, it's understandable that AUO's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does AUO's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of AUO's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for AUO that we have uncovered.

If these risks are making you reconsider your opinion on AUO, 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.