Lacklustre Performance Is Driving Ampco-Pittsburgh Corporation's (NYSE:AP) 26% Price Drop

Ampco-Pittsburgh Corporation (NYSE:AP) shares have had a horrible month, losing 26% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 45%, which is great even in a bull market.

After such a large drop in price, Ampco-Pittsburgh may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.1x, considering almost half of all companies in the Metals and Mining industry in the United States have P/S ratios greater than 2.4x and even P/S higher than 6x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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See our latest analysis for Ampco-Pittsburgh

How Has Ampco-Pittsburgh Performed Recently?

For example, consider that Ampco-Pittsburgh's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Although there are no analyst estimates available for Ampco-Pittsburgh, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Ampco-Pittsburgh's Revenue Growth Trending?

In order to justify its P/S ratio, Ampco-Pittsburgh would need to produce anemic growth that's substantially trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.0%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 14% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 14% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Ampco-Pittsburgh is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Ampco-Pittsburgh's P/S?

Ampco-Pittsburgh's P/S looks about as weak as its stock price lately. 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.

Our examination of Ampco-Pittsburgh confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Ampco-Pittsburgh has 2 warning signs (and 1 which is potentially serious) we think you should know about.

If these risks are making you reconsider your opinion on Ampco-Pittsburgh, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.