Rayonier Advanced Materials Inc. (NYSE:RYAM) Stock Catapults 25% Though Its Price And Business Still Lag The Industry

Rayonier Advanced Materials Inc. (NYSE:RYAM) shares have continued their recent momentum with a 25% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 27% over that time.

Even after such a large jump in price, it would still be understandable if you think Rayonier Advanced Materials is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.2x, considering almost half the companies in the United States' Chemicals industry have P/S ratios above 1.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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See our latest analysis for Rayonier Advanced Materials

How Rayonier Advanced Materials Has Been Performing

Rayonier Advanced Materials could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Rayonier Advanced Materials?

Rayonier Advanced Materials' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse 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 4.9%. 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. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 2.0% as estimated by the three analysts watching the company. With the industry predicted to deliver 11% growth, that's a disappointing outcome.

In light of this, it's understandable that Rayonier Advanced Materials' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Rayonier Advanced Materials' P/S?

The latest share price surge wasn't enough to lift Rayonier Advanced Materials' P/S close to the industry median. 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.

It's clear to see that Rayonier Advanced Materials maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Having said that, be aware Rayonier Advanced Materials is showing 1 warning sign in our investment analysis, you should know about.

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.

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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.