When close to half the companies in the Commercial Services industry in the United States have price-to-sales ratios (or "P/S") below 1.1x, you may consider MSA Safety Incorporated (NYSE:MSA) as a stock to avoid entirely with its 3.8x 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 so lofty.
Check out our latest analysis for MSA Safety
NYSE:MSA Price to Sales Ratio vs Industry December 27th 2023
How MSA Safety Has Been Performing
With revenue growth that's superior to most other companies of late, MSA Safety has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think MSA Safety's future stacks up against the industry? In that case, our free report is a great place to start.
How Is MSA Safety's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as steep as MSA Safety's is when the company's growth is on track to outshine the industry decidedly.
If we review the last year of revenue growth, the company posted a terrific increase of 16%. As a result, it also grew revenue by 30% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 5.1% during the coming year according to the three analysts following the company. That's shaping up to be materially lower than the 10% growth forecast for the broader industry.
With this in consideration, we believe it doesn't make sense that MSA Safety's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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 MSA Safety's P/S?
We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
It comes as a surprise to see MSA Safety trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
We don't want to rain on the parade too much, but we did also find 3 warning signs for MSA Safety (1 is a bit concerning!) that you need to be mindful of.
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.