It's not a stretch to say that Clearwater Paper Corporation's (NYSE:CLW) price-to-sales (or "P/S") ratio of 0.3x seems quite "middle-of-the-road" for Forestry companies in the United States, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
View our latest analysis for Clearwater Paper
How Clearwater Paper Has Been Performing
While the industry has experienced revenue growth lately, Clearwater Paper's revenue has gone into reverse gear, which is not great. 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.
Keen to find out how analysts think Clearwater Paper's future stacks up against the industry? In that case, our free report is a great place to start.Is There Some Revenue Growth Forecasted For Clearwater Paper?
There's an inherent assumption that a company should be matching the industry for P/S ratios like Clearwater Paper's 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 27%. The last three years don't look nice either as the company has shrunk revenue by 18% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Turning to the outlook, the next year should generate growth of 1.1% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 0.7%, which is not materially different.
With this information, we can see why Clearwater Paper is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.
What Does Clearwater Paper's P/S Mean For Investors?
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.
Our look at Clearwater Paper's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.
It is also worth noting that we have found 1 warning sign for Clearwater Paper that you need to take into consideration.
If you're unsure about the strength of Clearwater Paper's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.