It's not a stretch to say that Avient Corporation's (NYSE:AVNT) price-to-sales (or "P/S") ratio of 1.2x right now seems quite "middle-of-the-road" for companies in the Chemicals industry in the United States, where the median P/S ratio is around 1.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Avient

How Avient Has Been Performing

Recent times haven't been great for Avient as its revenue has been falling quicker than most other companies. One possibility is that the P/S is moderate because investors think the company's revenue trend will eventually fall in line with most others in the industry. You'd much rather the company improve its revenue if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For Avient?

Avient's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.8%. Regardless, revenue has managed to lift by a handy 11% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 2.1% per annum during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 10% per year, which is noticeably more attractive.

With this information, we find it interesting that Avient is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Given that Avient's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 8 warning signs with Avient (at least 4 which are a bit concerning), and understanding these should be part of your investment process.

If you're unsure about the strength of Avient's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.