Revenues Working Against Kaiser Aluminum Corporation's (NASDAQ:KALU) Share Price

With a price-to-sales (or "P/S") ratio of 0.5x Kaiser Aluminum Corporation (NASDAQ:KALU) may be sending bullish signals at the moment, given that almost half of all the Metals and Mining companies in the United States have P/S ratios greater than 1.3x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Kaiser Aluminum

What Does Kaiser Aluminum's Recent Performance Look Like?

Kaiser Aluminum hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Kaiser Aluminum's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 8.2% decrease to the company's top line. Even so, admirably revenue has lifted 168% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 5.3% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 22%, which is noticeably more attractive.

With this in consideration, its clear as to why Kaiser Aluminum'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 Final Word

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.

We've established that Kaiser Aluminum maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Kaiser Aluminum you should be aware of, and 2 of them are concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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