With a median price-to-sales (or "P/S") ratio of close to 1x in the Trade Distributors industry in the United States, you could be forgiven for feeling indifferent about Beacon Roofing Supply, Inc.'s (NASDAQ:BECN) P/S ratio of 0.7x.  While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.    

NasdaqGS:BECN Price to Sales Ratio vs Industry June 11th 2024

What Does Beacon Roofing Supply's Recent Performance Look Like?

Recent times haven't been great for Beacon Roofing Supply as its revenue has been rising slower than most other companies.   One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around.  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 Beacon Roofing Supply will help you uncover what's on the horizon.  

How Is Beacon Roofing Supply's Revenue Growth Trending?  

Beacon Roofing Supply's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.  

Taking a look back first, we see that the company managed to grow revenues by a handy 9.7% last year.   Revenue has also lifted 29% in aggregate from three years ago, partly thanks to the last 12 months of growth.  So we can start by confirming that the company has actually done a good job of growing revenue over that time.  

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 4.5% over the next year.  With the industry predicted to deliver 5.5% growth , the company is positioned for a comparable revenue result.

With this information, we can see why Beacon Roofing Supply is trading at a fairly similar P/S to the industry.  It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.  

What Does Beacon Roofing Supply's P/S Mean For Investors?

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.

Our look at Beacon Roofing Supply'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.  All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.    

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

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.