Subdued Growth No Barrier To Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP) With Shares Advancing 33%

Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP) shareholders have had their patience rewarded with a 33% share price jump in the last month. The last month tops off a massive increase of 142% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Universal Stainless & Alloy Products' P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Metals and Mining industry in the United States is also close to 1.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Universal Stainless & Alloy Products

How Universal Stainless & Alloy Products Has Been Performing

With revenue growth that's superior to most other companies of late, Universal Stainless & Alloy Products has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Universal Stainless & Alloy Products will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The P/S?

Universal Stainless & Alloy Products' 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.

Retrospectively, the last year delivered an exceptional 31% gain to the company's top line. The latest three year period has also seen an excellent 116% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 9.4% over the next year. That's shaping up to be materially lower than the 19% growth forecast for the broader industry.

With this in mind, we find it intriguing that Universal Stainless & Alloy Products' 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.

The Final Word

Its shares have lifted substantially and now Universal Stainless & Alloy Products' P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

When you consider that Universal Stainless & Alloy Products' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

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

If you're unsure about the strength of Universal Stainless & Alloy Products' 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.

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