Investors Appear Satisfied With Sociedad Química y Minera de Chile S.A.'s (NYSE:SQM) Prospects

Sociedad Química y Minera de Chile S.A.'s (NYSE:SQM) price-to-sales (or "P/S") ratio of 2.2x 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 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Sociedad Química y Minera de Chile

How Has Sociedad Química y Minera de Chile Performed Recently?

Sociedad Química y Minera de Chile could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Keen to find out how analysts think Sociedad Química y Minera de Chile's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Sociedad Química y Minera de Chile's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Sociedad Química y Minera de Chile's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 49% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 108% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 11% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 4.7% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Sociedad Química y Minera de Chile's 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.

The Key Takeaway

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.

As we suspected, our examination of Sociedad Química y Minera de Chile's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Sociedad Química y Minera de Chile has 2 warning signs we think you should be aware of.

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.