Pinning Down Casella Waste Systems, Inc.'s (NASDAQ:CWST) P/S Is Difficult Right Now

When close to half the companies in the Commercial Services industry in the United States have price-to-sales ratios (or "P/S") below 1.4x, you may consider Casella Waste Systems, Inc. (NASDAQ:CWST) as a stock to avoid entirely with its 4.4x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Casella Waste Systems

What Does Casella Waste Systems' Recent Performance Look Like?

Recent times have been advantageous for Casella Waste Systems as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Casella Waste Systems' Revenue Growth Trending?

Casella Waste Systems' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. Pleasingly, revenue has also lifted 72% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 8.5% per annum as estimated by the eight analysts watching the company. With the industry predicted to deliver 20% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Casella Waste Systems' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've concluded that Casella Waste Systems currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

It is also worth noting that we have found 3 warning signs for Casella Waste Systems (1 shouldn't be ignored!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Casella Waste Systems, 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.

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