Shareholders Should Be Pleased With TreeHouse Foods, Inc.'s (NYSE:THS) Price

There wouldn't be many who think TreeHouse Foods, Inc.'s (NYSE:THS) price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S for the Food industry in the United States is similar at about 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for TreeHouse Foods

What Does TreeHouse Foods' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, TreeHouse 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

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 TreeHouse Foods' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 15%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 16% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 1.5% each year during the coming three years according to the seven analysts following the company. That's shaping up to be similar to the 3.1% each year growth forecast for the broader industry.

With this information, we can see why TreeHouse Foods is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

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.

We've seen that TreeHouse Foods maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for TreeHouse Foods (1 shouldn't be ignored) you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.