Schnitzer Steel Industries, Inc.'s (NASDAQ:RDUS) price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Metals and Mining industry in the United States, where around half of the companies have P/S ratios above 1.3x and even P/S above 4x are quite common.   However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.  

NasdaqGS:RDUS Price to Sales Ratio vs Industry February 6th 2024

What Does Schnitzer Steel Industries' P/S Mean For Shareholders?

Recent times haven't been great for Schnitzer Steel Industries as its revenue has been falling quicker than most other companies.   Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed.  You'd much rather the company improve its revenue performance if you still believe in the business.  Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.    

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

How Is Schnitzer Steel Industries' Revenue Growth Trending?  

The only time you'd be truly comfortable seeing a P/S as low as Schnitzer Steel Industries' is when the company's growth is on track to lag the industry.  

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 10%.   Still, the latest three year period has seen an excellent 64% overall rise in revenue, in spite of its unsatisfying short-term performance.  So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.  

Looking ahead now, revenue is anticipated to slump, contracting by 5.7% during the coming year according to the two analysts following the company.  Meanwhile, the broader industry is forecast to expand by 12%, which paints a poor picture.

In light of this, it's understandable that Schnitzer Steel Industries' P/S would sit below the majority of other companies.  Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse.  Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.  

What We Can Learn From Schnitzer Steel Industries' P/S?

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.

As we suspected, our examination of Schnitzer Steel Industries' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S.  At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio.  It's hard to see the share price rising strongly in the near future under these circumstances.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Schnitzer Steel Industries that you need to be mindful of.  

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.