Not Many Are Piling Into TreeHouse Foods, Inc. (NYSE:THS) Just Yet

TreeHouse Foods, Inc.'s (NYSE:THS) price-to-sales (or "P/S") ratio of 0.3x might make it look like a buy right now compared to the Food industry in the United States, where around half of the companies have P/S ratios above 0.8x and even P/S above 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

See our latest analysis for TreeHouse Foods

How TreeHouse Foods Has Been Performing

While the industry has experienced revenue growth lately, TreeHouse Foods' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For TreeHouse Foods?

In order to justify its P/S ratio, TreeHouse Foods would need to produce sluggish growth that's trailing the industry.

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 1.4%. Regardless, revenue has managed to lift by a handy 8.4% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 1.6% per annum during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 2.5% growth each year, the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that TreeHouse Foods' P/S is lagging behind its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

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 TreeHouse Foods currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

There are also other vital risk factors to consider and we've discovered 2 warning signs for TreeHouse Foods (1 is concerning!) that you should be aware of before investing here.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.