Perimeter Solutions, SA (NYSE:PRM) Stocks Shoot Up 30% But Its P/S Still Looks Reasonable

Perimeter Solutions, SA (NYSE:PRM) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 57% share price drop in the last twelve months.

Since its price has surged higher, given close to half the companies operating in the United States' Chemicals industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Perimeter Solutions as a stock to potentially avoid with its 2.1x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Perimeter Solutions

How Perimeter Solutions Has Been Performing

With revenue that's retreating more than the industry's average of late, Perimeter Solutions has been very sluggish. It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Perimeter Solutions would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. This means it has also seen a slide in revenue over the longer-term as revenue is down 10% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 31% over the next year. That's shaping up to be materially higher than the 5.6% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Perimeter Solutions' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Perimeter Solutions' P/S?

Perimeter Solutions' P/S is on the rise since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Perimeter Solutions maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Chemicals industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Perimeter Solutions you should be aware of, and 1 of them makes us a bit uncomfortable.

If these risks are making you reconsider your opinion on Perimeter Solutions, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.