When close to half the companies in the Chemicals industry in the United States have price-to-sales ratios (or "P/S") below 1.4x, you may consider Quaker Chemical Corporation (NYSE:KWR) as a stock to potentially avoid with its 1.9x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Quaker Chemical

How Has Quaker Chemical Performed Recently?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Quaker Chemical has been doing quite well of late. It seems that many are expecting the company to continue defying the broader industry adversity, which has increased investors' willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Quaker Chemical?

In order to justify its P/S ratio, Quaker Chemical would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a decent 3.4% gain to the company's revenues. The latest three year period has also seen an excellent 38% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 1.2% during the coming year according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 5.5%, which is noticeably more attractive.

In light of this, it's alarming that Quaker Chemical's P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Quaker Chemical's P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Quaker Chemical, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

Having said that, be aware Quaker Chemical is showing 3 warning signs in our investment analysis, you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.