Why Investors Shouldn't Be Surprised By Plant Health Care plc's (LON:PHC) P/S
When close to half the companies in the Chemicals industry in the United Kingdom have price-to-sales ratios (or "P/S") below 2.2x, you may consider Plant Health Care plc (LON:PHC) as a stock to potentially avoid with its 3.1x P/S ratio. 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.
View our latest analysis for Plant Health Care
How Has Plant Health Care Performed Recently?
Recent times have been advantageous for Plant Health Care 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 Plant Health Care's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Plant Health Care's Revenue Growth Trending?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Plant Health Care's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 40% gain to the company's top line. The latest three year period has also seen an excellent 83% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to remain buoyant, climbing by 37% each year during the coming three years according to the one analyst following the company. That would be an excellent outcome when the industry is expected to decline by 3.6% per annum.
With this in consideration, we understand why Plant Health Care's P/S is a cut above its industry peers. At this time, shareholders aren't keen to offload something that is potentially eyeing a much more prosperous future.
The Final Word
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.
As we suspected, our examination of Plant Health Care's analyst forecasts revealed that its superior revenue outlook against a shaky industry is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. We still remain cautious about the company's ability to keep swimming against the current of the broader industry turmoil. Assuming the company's outlook remains unchanged, the share price is likely to be supported by prospective buyers.
There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Plant Health Care 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.
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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