With a price-to-sales (or "P/S") ratio of 0.3x JELD-WEN Holding, Inc. (NYSE:JELD) may be sending bullish signals at the moment, given that almost half of all the Building companies in the United States have P/S ratios greater than 1.7x and even P/S higher than 4x are not unusual. 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 JELD-WEN Holding's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, JELD-WEN Holding's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

How Is JELD-WEN Holding's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like JELD-WEN Holding's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.6%. As a result, revenue from three years ago have also fallen 3.8% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 3.7% during the coming year according to the twelve analysts following the company. With the industry predicted to deliver 7.0% growth, that's a disappointing outcome.

With this information, we are not surprised that JELD-WEN Holding is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From JELD-WEN Holding's P/S?

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.

It's clear to see that JELD-WEN Holding maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. 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.

Before you take the next step, you should know about the 1 warning sign for JELD-WEN Holding that we have uncovered.

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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