With a median price-to-sales (or "P/S") ratio of close to 2x in the Renewable Energy industry in the United States, you could be forgiven for feeling indifferent about Atlantica Sustainable Infrastructure plc's (NASDAQ:AY) P/S ratio, which comes in at about the same.  Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.    

See our latest analysis for Atlantica Sustainable Infrastructure

NasdaqGS:AY Price to Sales Ratio vs Industry January 19th 2024

How Atlantica Sustainable Infrastructure Has Been Performing

Atlantica Sustainable Infrastructure could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth.   It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling.  If not, then existing shareholders may be a little nervous about the viability of the share price.    

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

Do Revenue Forecasts Match The P/S Ratio?  

In order to justify its P/S ratio, Atlantica Sustainable Infrastructure would need to produce growth that's similar to the industry.  

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.4%.   Regardless, revenue has managed to lift by a handy 12% 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 4.8% each year during the coming three years according to the nine analysts following the company.  Meanwhile, the rest of the industry is forecast to expand by 7.8% each year, which is noticeably more attractive.

With this in mind, we find it intriguing that Atlantica Sustainable Infrastructure's P/S is closely matching its industry peers.  Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now.  Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.  

What Does Atlantica Sustainable Infrastructure's P/S Mean For Investors?

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.

When you consider that Atlantica Sustainable Infrastructure's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio.  At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long.  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.    

We don't want to rain on the parade too much, but we did also find 3 warning signs for Atlantica Sustainable Infrastructure (1 shouldn't be ignored!) 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).

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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.