Hillenbrand, Inc.'s (NYSE:HI) Share Price Boosted 26% But Its Business Prospects Need A Lift Too

Hillenbrand, Inc. (NYSE:HI) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 10% in the last twelve months.

Although its price has surged higher, Hillenbrand may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.8x, considering almost half of all companies in the Machinery industry in the United States have P/S ratios greater than 1.7x and even P/S higher than 4x aren't out of the ordinary. 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 Hillenbrand

How Has Hillenbrand Performed Recently?

With revenue growth that's superior to most other companies of late, Hillenbrand has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Hillenbrand will help you uncover what's on the horizon.

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

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

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. Pleasingly, revenue has also lifted 42% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should bring plunging returns, with revenue decreasing 5.5% as estimated by the five analysts watching the company. The industry is also set to see revenue decline 0.3% but the stock is shaping up to perform materially worse.

With this in consideration, it's clear to us why Hillenbrand's P/S isn't quite up to scratch with its industry peers. Nonetheless, with revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. Even just maintaining these prices could be difficult to achieve as the weak outlook is already weighing down the shares heavily.

The Bottom Line On Hillenbrand's P/S

Despite Hillenbrand's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Hillenbrand's analyst forecasts revealed that its even shakier outlook against the industry is contributing factor to why its P/S is so low. With such a gloomy outlook, investors feel the potential for an improvement in revenue isn't great enough to justify paying a premium resulting in a higher P/S ratio. Although, we would be concerned whether the company can even maintain this level of performance under these tough industry conditions. For now though, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Hillenbrand (including 1 which doesn't sit too well with us).

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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