Investors Still Aren't Entirely Convinced By American Vanguard Corporation's (NYSE:AVD) Revenues Despite 33% Price Jump

American Vanguard Corporation (NYSE:AVD) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 41% over that time.

In spite of the firm bounce in price, given about half the companies operating in the United States' Chemicals industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider American Vanguard as an attractive investment with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for American Vanguard

How Has American Vanguard Performed Recently?

American Vanguard's negative revenue growth of late has neither been better nor worse than most other companies. One possibility is that the P/S ratio is low because investors think the company's revenue may begin to slide even faster. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. In saying that, existing shareholders may feel hopeful about the share price if the company's revenue continues tracking the industry.

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

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

In order to justify its P/S ratio, American Vanguard would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.3%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 4.1% over the next year. That's shaping up to be similar to the 2.4% growth forecast for the broader industry.

With this in consideration, we find it intriguing that American Vanguard's P/S is lagging behind its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

Despite American Vanguard's share price climbing recently, its P/S still lags most other companies. 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.

It looks to us like the P/S figures for American Vanguard remain low despite growth that is expected to be in line with other companies in the industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for American Vanguard you should be aware of.

If these risks are making you reconsider your opinion on American Vanguard, 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.