L.B. Foster Company (NASDAQ:FSTR) Stock's 26% Dive Might Signal An Opportunity But It Requires Some Scrutiny

L.B. Foster Company (NASDAQ:FSTR) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Still, a bad month hasn't completely ruined the past year with the stock gaining 43%, which is great even in a bull market.

Even after such a large drop in price, when close to half the companies operating in the United States' Machinery industry have price-to-sales ratios (or "P/S") above 1.5x, you may still consider L.B. Foster as an enticing stock to check out with its 0.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for L.B. Foster

How L.B. Foster Has Been Performing

Recent revenue growth for L.B. Foster has been in line with the industry. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

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

The only time you'd be truly comfortable seeing a P/S as low as L.B. Foster's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.5%. The latest three year period has also seen a 12% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 0.08% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 1.4%, which is not materially different.

With this in consideration, we find it intriguing that L.B. Foster's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

What Does L.B. Foster's P/S Mean For Investors?

The southerly movements of L.B. Foster's shares means its P/S is now sitting at a pretty low level. 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.

We've seen that L.B. Foster currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you settle on your opinion, we've discovered 1 warning sign for L.B. Foster that you should be aware of.

If you're unsure about the strength of L.B. Foster's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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