You may think that with a price-to-sales (or "P/S") ratio of 0.3x Advantage Solutions Inc. (NASDAQ:ADV) is a stock worth checking out, seeing as almost half of all the Media companies in the United States have P/S ratios greater than 0.9x and even P/S higher than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Has Advantage Solutions Performed Recently?

Advantage Solutions' 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. Those who are bullish on Advantage Solutions will be hoping that this isn't the case.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 4.3% last year. This was backed up an excellent period prior to see revenue up by 34% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue growth is heading into negative territory, declining 1.9% per year over the next three years. That's not great when the rest of the industry is expected to grow by 4.4% per annum.

With this information, we are not surprised that Advantage Solutions is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Advantage Solutions' P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Advantage Solutions' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Advantage Solutions with six simple checks on some of these key factors.

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