With a median price-to-sales (or "P/S") ratio of close to 1.9x in the Renewable Energy industry in the United States, you could be forgiven for feeling indifferent about Atlantica Sustainable Infrastructure plc's (NASDAQ:AY) P/S ratio, which comes in at about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Atlantica Sustainable Infrastructure's P/S Mean For Shareholders?

Recent times haven't been great for Atlantica Sustainable Infrastructure as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Atlantica Sustainable Infrastructure's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Fortunately, a few good years before that means that it was still able to grow revenue by 9.0% in total over the last three years. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 5.2% each year as estimated by the seven analysts watching the company. With the industry only predicted to deliver 2.6% per year, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Atlantica Sustainable Infrastructure is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

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.

Despite enticing revenue growth figures that outpace the industry, Atlantica Sustainable Infrastructure's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Atlantica Sustainable Infrastructure (1 is potentially serious!) that you should be aware of.

If these risks are making you reconsider your opinion on Atlantica Sustainable Infrastructure, explore our interactive list of high quality stocks to get an idea of what else is out there.

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