The AES Corporation's (NYSE:AES) price-to-sales (or "P/S") ratio of 1x might make it look like a buy right now compared to the Renewable Energy industry in the United States, where around half of the companies have P/S ratios above 2.3x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for AES

What Does AES' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, AES has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

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

If we review the last year of revenue growth, the company posted a worthy increase of 3.5%. Pleasingly, revenue has also lifted 34% 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.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 3.8% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 7.6% per annum, which is noticeably more attractive.

With this in consideration, its clear as to why AES' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On AES' P/S

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 AES' 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. 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 2 warning signs for AES that you should be aware of.

If these risks are making you reconsider your opinion on AES, 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.