Investors Holding Back On Farmer Bros. Co. (NASDAQ:FARM)

Farmer Bros. Co.'s (NASDAQ:FARM) price-to-sales (or "P/S") ratio of 0.1x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Food industry in the United States have P/S ratios greater than 0.8x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Farmer Bros

How Farmer Bros Has Been Performing

Recent times haven't been great for Farmer Bros as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could 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 Farmer Bros will help you uncover what's on the horizon.

How Is Farmer Bros' Revenue Growth Trending?

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. This isn't what shareholders were looking for as it means they've been left with a 16% decline in revenue over the last three years in total. 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 year should generate growth of 3.9% as estimated by the dual analysts watching the company. That's shaping up to be similar to the 2.3% growth forecast for the broader industry.

In light of this, it's peculiar that Farmer Bros' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

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 looks to us like the P/S figures for Farmer Bros remain low despite growth that is expected to be in line with other companies in the industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

Before you take the next step, you should know about the 3 warning signs for Farmer Bros (1 is a bit unpleasant!) that we have uncovered.

If you're unsure about the strength of Farmer Bros' 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.