When you see that almost half of the companies in the Insurance industry in the United States have price-to-sales ratios (or "P/S") above 1x, United Fire Group, Inc. (NASDAQ:UFCS) looks to be giving off some buy signals with its 0.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
NasdaqGS:UFCS Price to Sales Ratio vs Industry August 7th 2024
How Has United Fire Group Performed Recently?
Recent times haven't been great for United Fire Group as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on United Fire Group.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
In order to justify its P/S ratio, United Fire Group would need to produce sluggish growth that's trailing the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. Still, lamentably revenue has fallen 5.6% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 13% over the next year. That's shaping up to be materially higher than the 5.1% growth forecast for the broader industry.
With this information, we find it odd that United Fire Group is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Final Word
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
United Fire Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for United Fire Group that you should be aware 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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