UGI Corporation's (NYSE:UGI) price-to-sales (or "P/S") ratio of 0.5x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Gas Utilities industry in the United States have P/S ratios greater than 1.6x.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.  

Check out our latest analysis for UGI

NYSE:UGI Price to Sales Ratio vs Industry January 23rd 2024

What Does UGI's Recent Performance Look Like?

UGI hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average.   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.    

Keen to find out how analysts think UGI's future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/S ratio, UGI would need to produce sluggish growth that's trailing the industry.  

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line.   Even so, admirably revenue has lifted 36% in aggregate from three years ago, notwithstanding the last 12 months.  Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.  

Turning to the outlook, the next three years should generate growth of 3.2%  per year as estimated by the three analysts watching the company.  That's shaping up to be materially lower than the 25% each year growth forecast for the broader industry.

In light of this, it's understandable that UGI's P/S sits below the majority of other companies.  It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.  

The Final Word

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that UGI maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected.  At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio.  The company will need a change of fortune to justify the P/S rising higher in the future.    

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

If these risks are making you reconsider your opinion on UGI, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.