Aspen Aerogels, Inc.'s (NYSE:ASPN) Shares Climb 28% But Its Business Is Yet to Catch Up

Explore Aspen Aerogels's Fair Values from the Community and select yours

Despite an already strong run, Aspen Aerogels, Inc. (NYSE:ASPN) shares have been powering on, with a gain of 28% in the last thirty days. But the last month did very little to improve the 58% share price decline over the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Aspen Aerogels' P/S ratio of 1.6x, since the median price-to-sales (or "P/S") ratio for the Chemicals industry in the United States is also close to 1.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

See our latest analysis for Aspen Aerogels

How Has Aspen Aerogels Performed Recently?

Aspen Aerogels certainly has been doing a good job lately as it's been growing revenue more than most other companies. 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 Aspen Aerogels will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Aspen Aerogels?

The only time you'd be comfortable seeing a P/S like Aspen Aerogels' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 52%. Pleasingly, revenue has also lifted 231% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 7.5% per year during the coming three years according to the seven analysts following the company. With the industry predicted to deliver 22% growth per annum, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Aspen Aerogels' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Aspen Aerogels' P/S?

Aspen Aerogels appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given that Aspen Aerogels' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Aspen Aerogels you should know about.

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.

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

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.