When close to half the companies operating in the Chemicals industry in the United States have price-to-sales ratios (or "P/S") above 1.5x, you may consider AdvanSix Inc. (NYSE:ASIX) as an attractive investment with its 0.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does AdvanSix's Recent Performance Look Like?

Recent times haven't been great for AdvanSix as its revenue has been falling quicker than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

AdvanSix's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 21%. Regardless, revenue has managed to lift by a handy 19% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 8.1% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 3.8%, which is noticeably less attractive.

In light of this, it's peculiar that AdvanSix's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On AdvanSix's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

AdvanSix'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. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for AdvanSix (1 makes us a bit uncomfortable!) 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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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com