Ag Growth International Inc.'s (TSE:AFN) Share Price Is Matching Sentiment Around Its Revenues
When close to half the companies operating in the Machinery industry in Canada have price-to-sales ratios (or "P/S") above 1.3x, you may consider Ag Growth International Inc. (TSE:AFN) as an attractive investment with its 0.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
See our latest analysis for Ag Growth International
How Has Ag Growth International Performed Recently?
Ag Growth International could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Keen to find out how analysts think Ag Growth International's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Ag Growth International's Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Ag Growth International's to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 7.8% last year. This was backed up an excellent period prior to see revenue up by 53% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 6.0% each year over the next three years. With the industry predicted to deliver 32% growth per year, the company is positioned for a weaker revenue result.
In light of this, it's understandable that Ag Growth International's P/S sits below the majority of other companies. 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
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 Ag Growth International maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Ag Growth International that you should be aware of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
