There wouldn't be many who think AZZ Inc.'s (NYSE:AZZ) price-to-sales (or "P/S") ratio of 1.5x is worth a mention when the median P/S for the Building industry in the United States is very similar. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Has AZZ Performed Recently?

Recent revenue growth for AZZ has been in line with the industry. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. Those who are bullish on AZZ will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

How Is AZZ's Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 3.5% gain to the company's revenues. Pleasingly, revenue has also lifted 107% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 4.4% over the next year. With the industry predicted to deliver 5.8% growth , the company is positioned for a comparable revenue result.

With this in mind, it makes sense that AZZ's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On AZZ's P/S

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.

Our look at AZZ's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Having said that, be aware AZZ is showing 4 warning signs in our investment analysis, and 1 of those is significant.

If you're unsure about the strength of AZZ'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.