Risks To Shareholder Returns Are Elevated At These Prices For APi Group Corporation (NYSE:APG)

With a median price-to-sales (or "P/S") ratio of close to 0.8x in the Construction industry in the United States, you could be forgiven for feeling indifferent about APi Group Corporation's (NYSE:APG) P/S ratio of 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for APi Group

How Has APi Group Performed Recently?

Recent times have been advantageous for APi Group as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is APi Group's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like APi Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 45% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 66% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 5.2% over the next year. That's shaping up to be materially lower than the 8.7% growth forecast for the broader industry.

With this information, we find it interesting that APi Group is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

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.

When you consider that APi Group's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Before you take the next step, you should know about the 2 warning signs for APi Group (1 doesn't sit too well with us!) that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.