There's No Escaping Advantage Solutions Inc.'s (NASDAQ:ADV) Muted Revenues Despite A 31% Share Price Rise

Despite an already strong run, Advantage Solutions Inc. (NASDAQ:ADV) shares have been powering on, with a gain of 31% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 47% over that time.

Even after such a large jump in price, Advantage Solutions may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Media industry in the United States have P/S ratios greater than 1x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Advantage Solutions

How Has Advantage Solutions Performed Recently?

Advantage Solutions hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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.

Keen to find out how analysts think Advantage Solutions' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Advantage Solutions would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 5.9% decrease to the company's top line. As a result, revenue from three years ago have also fallen 8.6% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 5.3% as estimated by the three analysts watching the company. That's not great when the rest of the industry is expected to grow by 2.4%.

With this in consideration, we find it intriguing that Advantage Solutions' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

The latest share price surge wasn't enough to lift Advantage Solutions' P/S close to the industry median. 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Advantage Solutions' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Advantage Solutions' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Advantage Solutions, and understanding these should be part of your investment process.

If you're unsure about the strength of Advantage Solutions' 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.