Intrepid Potash, Inc. (NYSE:IPI) Stock Rockets 28% But Many Are Still Ignoring The Company

Intrepid Potash, Inc. (NYSE:IPI) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 47%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Intrepid Potash's P/S ratio of 1.6x, since the median price-to-sales (or "P/S") ratio for the Chemicals industry in the United States is also close to 1.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Intrepid Potash

What Does Intrepid Potash's Recent Performance Look Like?

With revenue that's retreating more than the industry's average of late, Intrepid Potash has been very sluggish. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. 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 Intrepid Potash will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Intrepid Potash would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 15%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 8.0% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 2.2% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Intrepid Potash's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Intrepid Potash's P/S?

Intrepid Potash's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Looking at Intrepid Potash's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Intrepid Potash (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

If you're unsure about the strength of Intrepid Potash's 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.