Subdued Growth No Barrier To Prudential Financial, Inc.'s (NYSE:PRU) Price

With a median price-to-sales (or "P/S") ratio of close to 1x in the Insurance industry in the United States, you could be forgiven for feeling indifferent about Prudential Financial, Inc.'s (NYSE:PRU) P/S ratio of 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Prudential Financial

How Prudential Financial Has Been Performing

Recent times haven't been great for Prudential Financial as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Do Revenue Forecasts Match The P/S Ratio?

Prudential Financial's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with 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. That's essentially a continuation of what we've seen over the last three years, as its revenue growth has been virtually non-existent for that entire period. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 0.7% per year over the next three years. That's shaping up to be materially lower than the 4.5% each year growth forecast for the broader industry.

With this in mind, we find it intriguing that Prudential Financial's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Prudential Financial's P/S?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look at the analysts forecasts of Prudential Financial's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Prudential Financial with six simple checks will allow you to discover any risks that could be an issue.

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.

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