There wouldn't be many who think Leggett & Platt, Incorporated's (NYSE:LEG) price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S for the Consumer Durables industry in the United States is similar at about 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Leggett & Platt's Recent Performance Look Like?

Leggett & Platt could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Leggett & Platt's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Leggett & Platt's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.6%. This means it has also seen a slide in revenue over the longer-term as revenue is down 9.7% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 0.5% each year over the next three years. With the industry predicted to deliver 6.4% growth per annum, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Leggett & Platt's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Leggett & Platt's P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Given that Leggett & Platt's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Having said that, be aware Leggett & Platt is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.