The Market Lifts Calumet, Inc. (NASDAQ:CLMT) Shares 33% But It Can Do More

Calumet, Inc. (NASDAQ:CLMT) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Calumet's price-to-sales (or "P/S") ratio of 0.4x might still make it look like a buy right now compared to the Oil and Gas industry in the United States, where around half of the companies have P/S ratios above 1.6x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Calumet

How Has Calumet Performed Recently?

Calumet hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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Is There Any Revenue Growth Forecasted For Calumet?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.6%. The last three years don't look nice either as the company has shrunk revenue by 4.5% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 8.0% each year over the next three years. That's shaping up to be similar to the 6.6% per year growth forecast for the broader industry.

In light of this, it's peculiar that Calumet's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Calumet's P/S?

Despite Calumet's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've seen that Calumet currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 3 warning signs for Calumet (2 are a bit unpleasant!) that we have uncovered.

If you're unsure about the strength of Calumet's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.