Not Many Are Piling Into Farmer Bros. Co. (NASDAQ:FARM) Just Yet

You may think that with a price-to-sales (or "P/S") ratio of 0.1x Farmer Bros. Co. (NASDAQ:FARM) is a stock worth checking out, seeing as almost half of all the Food companies in the United States have P/S ratios greater than 0.8x and even P/S higher than 3x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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Check out our latest analysis for Farmer Bros

What Does Farmer Bros' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Farmer Bros' 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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Is There Any Revenue Growth Forecasted For Farmer Bros?

In order to justify its P/S ratio, Farmer Bros would need to produce sluggish growth that's trailing 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. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 24% overall from three years ago. 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 dual analysts covering the company suggest revenue should grow by 2.6% over the next year. Meanwhile, the rest of the industry is forecast to expand by 3.1%, which is not materially different.

With this information, we find it odd that Farmer Bros is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Farmer Bros' P/S?

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.

Our examination of Farmer Bros' revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Farmer Bros (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

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.