Those holding Perimeter Solutions, SA (NYSE:PRM) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios.    But the last month did very little to improve the 56% share price decline over the last year.  

Following the firm bounce in price, when almost half of the companies in the United States' Chemicals industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Perimeter Solutions as a stock probably not worth researching with its 2.1x P/S ratio.   However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.  

View our latest analysis for Perimeter Solutions

NYSE:PRM Price to Sales Ratio vs Industry November 22nd 2023

What Does Perimeter Solutions' Recent Performance Look Like?

Recent times haven't been great for Perimeter Solutions as its revenue has been falling quicker than most other companies.   It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing.  However, if this isn't the case, investors might get caught out paying too much for the stock.    

Want the full picture on analyst estimates for the company? Then our free report on Perimeter Solutions will help you uncover what's on the horizon.  

How Is Perimeter Solutions' Revenue Growth Trending?  

There's an inherent assumption that a company should outperform the industry for P/S ratios like Perimeter Solutions' to be considered reasonable.  

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%.   As a result, revenue from three years ago have also fallen 10% overall.  Therefore, it's fair to say the revenue growth recently has been undesirable for the company.  

Turning to the outlook, the next year should generate growth of 31%  as estimated by the two analysts watching the company.  With the industry only predicted to deliver 5.6%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Perimeter Solutions' P/S is high relative to its industry peers.  It seems most investors are expecting this strong future growth and are willing to pay more for the stock.  

The Final Word

Perimeter Solutions shares have taken a big step in a northerly direction, but its P/S is elevated as a result.      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.

We've established that Perimeter Solutions maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Chemicals industry, as expected.  Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat.  Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Perimeter Solutions (1 shouldn't be ignored!) that you need to be mindful of.  

If you're unsure about the strength of Perimeter Solutions' 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.