Why Investors Shouldn't Be Surprised By Algoma Steel Group Inc.'s (NASDAQ:ASTL) 34% Share Price Plunge

To the annoyance of some shareholders, Algoma Steel Group Inc. (NASDAQ:ASTL) shares are down a considerable 34% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 29% in that time.

Since its price has dipped substantially, Algoma Steel Group may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Metals and Mining industry in the United States have P/S ratios greater than 1.1x and even P/S higher than 6x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Algoma Steel Group

How Algoma Steel Group Has Been Performing

While the industry has experienced revenue growth lately, Algoma Steel Group's 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 Algoma Steel Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Algoma Steel Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Algoma Steel Group's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 11%. This means it has also seen a slide in revenue over the longer-term as revenue is down 13% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 7.2% over the next year. With the industry predicted to deliver 11% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Algoma Steel Group's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Algoma Steel Group's recently weak share price has pulled its P/S back below other Metals and Mining companies. 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.

As expected, our analysis of Algoma Steel Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Plus, you should also learn about this 1 warning sign we've spotted with Algoma Steel Group.

If you're unsure about the strength of Algoma Steel Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.