When you see that almost half of the companies in the Electronic industry in the United States have price-to-sales ratios (or "P/S") below 1.6x, Crane NXT, Co. (NYSE:CXT) looks to be giving off some sell signals with its 2.1x P/S ratio.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.  

Check out our latest analysis for Crane NXT

NYSE:CXT Price to Sales Ratio vs Industry November 29th 2023

How Crane NXT Has Been Performing

With revenue growth that's superior to most other companies of late, Crane NXT has been doing relatively well.   It seems the market expects this form will continue into the future, hence the elevated P/S ratio.  However, if this isn't the case, investors might get caught out paying too much for the stock.    

Want the full picture on analyst estimates for the company? Then our free report on Crane NXT will help you uncover what's on the horizon.  

What Are Revenue Growth Metrics Telling Us About The High P/S?  

The only time you'd be truly comfortable seeing a P/S as high as Crane NXT's is when the company's growth is on track to outshine 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 24% in total over the last three years.  Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.  

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 2.4% over the next year.  Meanwhile, the rest of the industry is forecast to expand by 7.0%, which is noticeably more attractive.

In light of this, it's alarming that Crane NXT's P/S sits above the majority of other companies.  Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price.  There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.  

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It comes as a surprise to see Crane NXT trade at such a high P/S given the revenue forecasts look less than stellar.  When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures.  At these price levels, investors should remain cautious, particularly if things don't improve.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for Crane NXT that you need to be mindful of.  

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).