LyondellBasell Industries N.V. (NYSE:LYB) shares have had a horrible month, losing 25% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 50% in that time.
In spite of the heavy fall in price, considering around half the companies operating in the United States' Chemicals industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider LyondellBasell Industries as an solid investment opportunity with its 0.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for LyondellBasell Industries
How Has LyondellBasell Industries Performed Recently?
LyondellBasell Industries certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Keen to find out how analysts think LyondellBasell Industries' future stacks up against the industry? In that case, our free report is a great place to start.Is There Any Revenue Growth Forecasted For LyondellBasell Industries?
There's an inherent assumption that a company should underperform the industry for P/S ratios like LyondellBasell Industries' to be considered reasonable.
Retrospectively, the last year delivered a decent 3.0% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 28% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the analysts covering the company suggest revenue growth is heading into negative territory, declining 8.9% each year over the next three years. Meanwhile, the broader industry is forecast to expand by 14% per year, which paints a poor picture.
In light of this, it's understandable that LyondellBasell Industries' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
The Key Takeaway
The southerly movements of LyondellBasell Industries' shares means its P/S is now sitting at a pretty low level. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of LyondellBasell Industries' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
There are also other vital risk factors to consider and we've discovered 4 warning signs for LyondellBasell Industries (2 are concerning!) that you should be aware of before investing here.
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.