DuPont de Nemours, Inc.'s (NYSE:DD) Price Is Out Of Tune With Revenues

When you see that almost half of the companies in the Chemicals industry in the United States have price-to-sales ratios (or "P/S") below 1.4x, DuPont de Nemours, Inc. (NYSE:DD) looks to be giving off some sell signals with its 2.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for DuPont de Nemours

How DuPont de Nemours Has Been Performing

DuPont de Nemours' negative revenue growth of late has neither been better nor worse than most other companies. One possibility is that the P/S ratio is high because investors think the company can turn things around and break free from the broader downward trend in revenue. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on DuPont de Nemours will help you uncover what's on the horizon.

How Is DuPont de Nemours' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as DuPont de Nemours' is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 3.8% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 11% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 5.8% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 7.0% each year, which is not materially different.

With this in consideration, we find it intriguing that DuPont de Nemours' P/S is higher than its industry peers. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From DuPont de Nemours' P/S?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Analysts are forecasting DuPont de Nemours' revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for DuPont de Nemours you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.