Kronos Worldwide, Inc.'s (NYSE:KRO) 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 Chemicals industry in the United States have P/S ratios greater than 1.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Kronos Worldwide

How Has Kronos Worldwide Performed Recently?

Recent times have been pleasing for Kronos Worldwide as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting future revenue performance to follow the rest of the industry downwards, which has kept the P/S suppressed. If you 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.

Want the full picture on analyst estimates for the company? Then our free report on Kronos Worldwide will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 16% gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 15% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 2.6%, which is noticeably less attractive.

In light of this, it's peculiar that Kronos Worldwide's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

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.

Kronos Worldwide's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Kronos Worldwide (of which 2 are a bit unpleasant!) you should know about.

If you're unsure about the strength of Kronos Worldwide'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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