Whirlpool Corporation's (NYSE:WHR) Share Price Not Quite Adding Up

There wouldn't be many who think Whirlpool Corporation's (NYSE:WHR) price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S for the Consumer Durables industry in the United States is similar at about 0.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Whirlpool

What Does Whirlpool's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Whirlpool's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

The only time you'd be comfortable seeing a P/S like Whirlpool's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 3.4% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 15% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 2.1% each year as estimated by the nine analysts watching the company. That's not great when the rest of the industry is expected to grow by 6.5% per annum.

With this in consideration, we think it doesn't make sense that Whirlpool's P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What Does Whirlpool's P/S Mean For Investors?

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.

It appears that Whirlpool currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Whirlpool (1 shouldn't be ignored) you should be aware of.

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.