Astec Industries, Inc.'s (NASDAQ:ASTE) price-to-sales (or "P/S") ratio of 0.6x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Machinery industry in the United States have P/S ratios greater than 1.4x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Astec Industries' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Astec Industries' revenue has gone into reverse gear, which is not great. 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.

How Is Astec Industries' Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.0%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 25% 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.

Looking ahead now, revenue is anticipated to climb by 4.1% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 0.7% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Astec Industries' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that 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.

To us, it seems Astec Industries currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Astec Industries that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.