You may think that with a price-to-sales (or "P/S") ratio of 0.3x B&G Foods, Inc. (NYSE:BGS) is a stock worth checking out, seeing as almost half of all the Food companies in the United States have P/S ratios greater than 0.9x and even P/S higher than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does B&G Foods' P/S Mean For Shareholders?

B&G Foods hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

How Is B&G Foods' Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like B&G Foods' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 7.1% decrease to the company's top line. As a result, revenue from three years ago have also fallen 1.8% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue growth is heading into negative territory, declining 1.3% over the next year. Meanwhile, the broader industry is forecast to expand by 2.9%, which paints a poor picture.

In light of this, it's understandable that B&G Foods' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that B&G Foods' P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with B&G Foods (including 1 which shouldn't be ignored).

If these risks are making you reconsider your opinion on B&G Foods, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.