It's A Story Of Risk Vs Reward With Lifeway Foods, Inc. (NASDAQ:LWAY)

With a median price-to-sales (or "P/S") ratio of close to 0.8x in the Food industry in the United States, you could be forgiven for feeling indifferent about Lifeway Foods, Inc.'s (NASDAQ:LWAY) P/S ratio of 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Lifeway Foods

How Lifeway Foods Has Been Performing

With revenue growth that's superior to most other companies of late, Lifeway Foods has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Lifeway Foods will help you uncover what's on the horizon.

How Is Lifeway Foods' Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. Pleasingly, revenue has also lifted 54% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 7.6% as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 1.8% growth forecast for the broader industry.

With this information, we find it interesting that Lifeway Foods is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does Lifeway Foods' P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Lifeway Foods currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Plus, you should also learn about this 1 warning sign we've spotted with Lifeway Foods.

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.