With A 32% Price Drop For Aspen Aerogels, Inc. (NYSE:ASPN) You'll Still Get What You Pay For

Aspen Aerogels, Inc. (NYSE:ASPN) shares have had a horrible month, losing 32% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 74% in the last year.

Although its price has dipped substantially, when almost half of the companies in the United States' Chemicals industry have price-to-sales ratios (or "P/S") below 1.4x, you may still consider Aspen Aerogels as a stock not worth researching with its 3.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Aspen Aerogels

How Aspen Aerogels Has Been Performing

Aspen Aerogels 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. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Aspen Aerogels' Revenue Growth Trending?

In order to justify its P/S ratio, Aspen Aerogels would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 88% last year. The latest three year period has also seen an excellent 234% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 31% each year during the coming three years according to the nine analysts following the company. That's shaping up to be materially higher than the 6.1% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Aspen Aerogels' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Aspen Aerogels' shares may have suffered, but its P/S remains high. 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.

Our look into Aspen Aerogels shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Aspen Aerogels you should be aware of, and 1 of them is significant.

If you're unsure about the strength of Aspen Aerogels' 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.