You may think that with a price-to-sales (or "P/S") ratio of 1.2x Invesco Ltd. (NYSE:IVZ) is definitely a stock worth checking out, seeing as almost half of all the Capital Markets companies in the United States have P/S ratios greater than 3.2x and even P/S above 8x 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 so limited.

How Has Invesco Performed Recently?

Invesco could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For Invesco?

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

Retrospectively, the last year delivered a frustrating 1.1% decrease to the company's top line. As a result, revenue from three years ago have also fallen 7.0% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 23% during the coming year according to the ten analysts following the company. With the industry predicted to deliver 7.4% growth, that's a disappointing outcome.

With this information, we are not surprised that Invesco 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. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Invesco's 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Invesco's P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Invesco you should be aware of.

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

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