Beacon Roofing Supply, Inc.'s (NASDAQ:BECN) price-to-sales (or "P/S") ratio of 0.6x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Trade Distributors industry in the United States have P/S ratios greater than 1.4x.   Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.  

NasdaqGS:BECN Price to Sales Ratio vs Industry March 5th 2024

How Beacon Roofing Supply Has Been Performing

Beacon Roofing Supply's revenue growth of late has been pretty similar to most other companies.   It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio.  If not, then existing shareholders have reason to be optimistic about the future direction of the share price.    

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Beacon Roofing Supply.

How Is Beacon Roofing Supply's Revenue Growth Trending?  

There's an inherent assumption that a company should underperform the industry for P/S ratios like Beacon Roofing Supply's to be considered reasonable.  

If we review the last year of revenue growth, the company posted a worthy increase of 8.2%.   Pleasingly, revenue has also lifted 50% in aggregate from three years ago, partly thanks to the last 12 months of growth.  Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.  

Looking ahead now, revenue is anticipated to climb by 2.9% per annum during the coming three years according to the analysts following the company.  That's shaping up to be materially lower than the 5.6% per year growth forecast for the broader industry.

With this information, we can see why Beacon Roofing Supply is trading at a P/S lower than the industry.  Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.  

The Key Takeaway

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.

As expected, our analysis of Beacon Roofing Supply's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S.  Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S.  It's hard to see the share price rising strongly in the near future under these circumstances.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for Beacon Roofing Supply that you need to be mindful of.  

If you're unsure about the strength of Beacon Roofing Supply's 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.