With Aspen Aerogels, Inc. (NYSE:ASPN) It Looks Like You'll Get What You Pay For
Aspen Aerogels, Inc.'s (NYSE:ASPN) price-to-sales (or "P/S") ratio of 2.9x 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 1.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
See our latest analysis for Aspen Aerogels
How Has Aspen Aerogels Performed Recently?
Recent times have been advantageous for Aspen Aerogels as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.
Keen to find out how analysts think Aspen Aerogels' future stacks up against the industry? In that case, our free report is a great place to start.
How Is Aspen Aerogels' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as high as Aspen Aerogels' is when the company's growth is on track to outshine the industry.
Retrospectively, the last year delivered an exceptional 42% gain to the company's top line. The latest three year period has also seen an excellent 34% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 54% per annum as estimated by the eight analysts watching the company. With the industry only predicted to deliver 14% each year, the company is positioned for a stronger revenue result.
With this in mind, it's not hard to understand why Aspen Aerogels' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Bottom Line On Aspen Aerogels' P/S
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
Our look into Aspen Aerogels shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
There are also other vital risk factors to consider and we've discovered 3 warning signs for Aspen Aerogels (2 shouldn't be ignored!) that you should be aware of before investing here.
If you're unsure about the strength of Aspen Aerogels' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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