Alto Ingredients, Inc. (NASDAQ:ALTO) Shares Fly 28% But Investors Aren't Buying For Growth

Alto Ingredients, Inc. (NASDAQ:ALTO) shares have continued their recent momentum with a 28% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

In spite of the firm bounce in price, considering around half the companies operating in the United States' Chemicals industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Alto Ingredients as an solid investment opportunity with its 0.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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See our latest analysis for Alto Ingredients

How Alto Ingredients Has Been Performing

Alto Ingredients could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

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Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 8.0% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 34% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 5.9% during the coming year according to the two analysts following the company. With the industry predicted to deliver 9.3% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Alto Ingredients' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Alto Ingredients' P/S

Alto Ingredients' stock price has surged recently, but its but its P/S still remains modest. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Alto Ingredients' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Alto Ingredients that you should be aware of.

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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.