Fewer Investors Than Expected Jumping On Advantage Solutions Inc. (NASDAQ:ADV)
You may think that with a price-to-sales (or "P/S") ratio of 0.1x Advantage Solutions Inc. (NASDAQ:ADV) is a stock worth checking out, seeing as almost half of all the Media companies in the United States have P/S ratios greater than 0.9x and even P/S higher than 3x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Advantage Solutions
How Advantage Solutions Has Been Performing
Advantage Solutions certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Advantage Solutions will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
The only time you'd be truly comfortable seeing a P/S as low as Advantage Solutions' is when the company's growth is on track to lag the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. Revenue has also lifted 7.0% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 2.9% each year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 3.5% per year, which is not materially different.
In light of this, it's peculiar that Advantage Solutions' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
What Does Advantage Solutions' P/S Mean For Investors?
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've seen that Advantage Solutions currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Advantage Solutions that 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.
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