Further Upside For Primo Brands Corporation (NYSE:PRMB) Shares Could Introduce Price Risks After 26% Bounce

The Primo Brands Corporation (NYSE:PRMB) share price has done very well over the last month, posting an excellent gain of 26%. The last month tops off a massive increase of 108% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Primo Brands' price-to-sales (or "P/S") ratio of 2.4x right now seems quite "middle-of-the-road" compared to the Beverage industry in the United States, where the median P/S ratio is around 2.8x. 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.

View our latest analysis for Primo Brands

How Primo Brands Has Been Performing

There hasn't been much to differentiate Primo Brands' and the industry's revenue growth lately. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. Those who are bullish on Primo Brands will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

Keen to find out how analysts think Primo Brands' future stacks up against the industry? In that case, our free report is a great place to start.

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

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

Retrospectively, the last year delivered a decent 4.5% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 44% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 18% per annum during the coming three years according to the two analysts following the company. That's shaping up to be materially higher than the 4.5% per year growth forecast for the broader industry.

In light of this, it's curious that Primo Brands' P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Primo Brands' P/S?

Primo Brands appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Looking at Primo Brands' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

You always need to take note of risks, for example - Primo Brands has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Primo Brands, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.