Origin Materials, Inc.'s (NASDAQ:ORGN) Share Price Is Still Matching Investor Opinion Despite 27% Slump

Origin Materials, Inc. (NASDAQ:ORGN) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 76% in the last year.

Even after such a large drop in price, you could still be forgiven for thinking Origin Materials is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 3.8x, considering almost half the companies in the United States' Chemicals industry have P/S ratios below 1.3x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Origin Materials

What Does Origin Materials' P/S Mean For Shareholders?

Origin Materials certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. The P/S ratio is probably high because investors think the company will continue to navigate the broader industry headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Origin Materials' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as Origin Materials' is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 123% last year. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 42% during the coming year according to the lone analyst following the company. With the industry only predicted to deliver 2.5%, the company is positioned for a stronger revenue result.

With this information, we can see why Origin Materials is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

A significant share price dive has done very little to deflate Origin Materials' very lofty 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.

As we suspected, our examination of Origin Materials' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Origin Materials, and understanding should be part of your investment process.

If you're unsure about the strength of Origin Materials' 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.