Some Confidence Is Lacking In FMC Corporation's (NYSE:FMC) P/S

There wouldn't be many who think FMC Corporation's (NYSE:FMC) price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S for the Chemicals industry in the United States is similar at about 1.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for FMC

What Does FMC's Recent Performance Look Like?

Recent revenue growth for FMC has been in line with the industry. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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

Is There Some Revenue Growth Forecasted For FMC?

There's an inherent assumption that a company should be matching the industry for P/S ratios like FMC's to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 24% overall from three years ago. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 5.5% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 16% per annum, which is noticeably more attractive.

In light of this, it's curious that FMC's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does FMC's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at the analysts forecasts of FMC's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You need to take note of risks, for example - FMC has 3 warning signs (and 2 which can't be ignored) we think you should know about.

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