With a price-to-sales (or "P/S") ratio of 0.6x Ferroglobe PLC (NASDAQ:GSM) may be sending bullish signals at the moment, given that almost half of all the Metals and Mining companies in the United States have P/S ratios greater than 1.3x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Ferroglobe's Recent Performance Look Like?

Recent times haven't been great for Ferroglobe as its revenue has been falling quicker than most other companies. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Ferroglobe?

The only time you'd be truly comfortable seeing a P/S as low as Ferroglobe's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 36%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 44% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 2.2% per annum as estimated by the dual analysts watching the company. With the industry predicted to deliver 9.9% growth per annum, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Ferroglobe's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Ferroglobe's P/S Mean For Investors?

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.

We've established that Ferroglobe 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Ferroglobe that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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