Why Investors Shouldn't Be Surprised By Hillman Solutions Corp.'s (NASDAQ:HLMN) P/S

With a median price-to-sales (or "P/S") ratio of close to 1.6x in the Machinery industry in the United States, you could be forgiven for feeling indifferent about Hillman Solutions Corp.'s (NASDAQ:HLMN) P/S ratio of 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Hillman Solutions

What Does Hillman Solutions' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Hillman Solutions' revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. 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 Hillman Solutions will help you uncover what's on the horizon.

How Is Hillman Solutions' Revenue Growth Trending?

In order to justify its P/S ratio, Hillman Solutions would need to produce growth that's similar to the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Likewise, not much has changed from three years ago as revenue have been stuck during that whole time. Therefore, it's fair to say that revenue growth has definitely eluded the company recently.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 5.1% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 3.3% each year, which is not materially different.

With this information, we can see why Hillman Solutions is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Hillman Solutions' P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've seen that Hillman Solutions maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Having said that, be aware Hillman Solutions is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.