Little Excitement Around Quad/Graphics, Inc.'s (NYSE:QUAD) Revenues As Shares Take 27% Pounding

Quad/Graphics, Inc. (NYSE:QUAD) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Longer-term, the stock has been solid despite a difficult 30 days, gaining 23% in the last year.

Since its price has dipped substantially, Quad/Graphics' price-to-sales (or "P/S") ratio of 0.1x might make it look like a buy right now compared to the Commercial Services industry in the United States, where around half of the companies have P/S ratios above 1.3x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Quad/Graphics

What Does Quad/Graphics' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Quad/Graphics' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Quad/Graphics.

How Is Quad/Graphics' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 9.9% decrease to the company's top line. As a result, revenue from three years ago have also fallen 6.7% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 7.9% as estimated by the two analysts watching the company. With the industry predicted to deliver 8.8% growth, that's a disappointing outcome.

With this information, we are not surprised that Quad/Graphics is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What Does Quad/Graphics' P/S Mean For Investors?

The southerly movements of Quad/Graphics' 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.

As we suspected, our examination of Quad/Graphics' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Quad/Graphics' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Quad/Graphics you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.