Titan International, Inc.'s (NYSE:TWI) price-to-sales (or "P/S") ratio of 0.3x might make it look like a buy right now compared to the Machinery industry in the United States, where around half of the companies have P/S ratios above 1.8x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
NYSE:TWI Price to Sales Ratio vs Industry January 18th 2025
What Does Titan International's Recent Performance Look Like?
Titan International hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Keen to find out how analysts think Titan International's future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The Low P/S Ratio?
Titan International's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Retrospectively, the last year delivered a frustrating 4.6% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 14% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.
Shifting to the future, estimates from the three analysts covering the company are not great, suggesting revenue should decline by 1.4% over the next year. Although, this is simply shaping up to be in line with the broader industry, which is also set to decline 0.7%.
With this in consideration, we find it intriguing but understandable that Titan International's P/S falls short of its industry peers. We think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as the weak outlook is already weighing down the shares heavily.
The Key Takeaway
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.
Our examination of Titan International's analyst forecasts revealed despite having an equally shaky outlook against the industry, its P/S much lower than we would have predicted. There could be some further unobserved threats to revenue stability preventing the P/S ratio from matching the outlook. The market could be pricing in revenue growth falling below that of the industry, a possibility given tough industry conditions. It appears some are indeed anticipating revenue instability, because the company's current prospects should typically see a P/S closer to the industry average.
Having said that, be aware Titan International is showing 1 warning sign in our investment analysis, you should know about.
If you're unsure about the strength of Titan International's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.