Fortrea Holdings Inc.'s (NASDAQ:FTRE) Low P/S No Reason For Excitement

You may think that with a price-to-sales (or "P/S") ratio of 0.9x Fortrea Holdings Inc. (NASDAQ:FTRE) is definitely a stock worth checking out, seeing as almost half of all the Life Sciences companies in the United States have P/S ratios greater than 3.7x and even P/S above 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Fortrea Holdings

What Does Fortrea Holdings' P/S Mean For Shareholders?

Fortrea Holdings certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. If you 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 Fortrea Holdings.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Fortrea Holdings would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Fortunately, a few good years before that means that it was still able to grow revenue by 20% in total over the last three years. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 3.8% per year during the coming three years according to the six analysts following the company. That's shaping up to be materially lower than the 6.4% each year growth forecast for the broader industry.

With this information, we can see why Fortrea Holdings is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

We've established that Fortrea Holdings maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for Fortrea Holdings you should be aware of, and 1 of them doesn't sit too well with us.

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

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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.