Stock Analysis

Risks To Shareholder Returns Are Elevated At These Prices For DuPont de Nemours, Inc. (NYSE:DD)

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DuPont de Nemours, Inc.'s (NYSE:DD) price-to-sales (or "P/S") ratio of 2.8x may not look like an appealing investment opportunity when you consider close to half the companies in the Chemicals industry in the United States have P/S ratios below 1.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for DuPont de Nemours

NYSE:DD Price to Sales Ratio vs Industry May 21st 2024

What Does DuPont de Nemours' Recent Performance Look Like?

There hasn't been much to differentiate DuPont de Nemours' and the industry's retreating revenue lately. It might be that many expect the company's revenue to strengthen positively despite the tough industry conditions, which has kept the P/S from falling. 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.

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

DuPont de Nemours' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 6.1%. This means it has also seen a slide in revenue over the longer-term as revenue is down 12% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 4.9% each year as estimated by the analysts watching the company. With the industry predicted to deliver 8.6% growth each year, the company is positioned for a weaker revenue result.

With this information, we find it concerning that DuPont de Nemours is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future 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?

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.

We've concluded that DuPont de Nemours currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 4 warning signs we've spotted with DuPont de Nemours.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Valuation is complex, but we're helping make it simple.

Find out whether DuPont de Nemours is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.