Quaker Chemical Corporation's (NYSE:KWR) 26% Price Boost Is Out Of Tune With Revenues

Quaker Chemical Corporation -1.43%

Quaker Chemical Corporation




Despite an already strong run, Quaker Chemical Corporation (NYSE:KWR) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 32%.

After such a large jump in price, you could be forgiven for thinking Quaker Chemical is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2x, considering almost half the companies in the United States' Chemicals industry have P/S ratios below 1.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Quaker Chemical

NYSE:KWR Price to Sales Ratio vs Industry December 29th 2023

What Does Quaker Chemical's Recent Performance Look Like?

Quaker Chemical certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. The P/S ratio is probably high because investors think the company will continue to navigate the broader industry headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Quaker Chemical.

Is There Enough Revenue Growth Forecasted For Quaker Chemical?

In order to justify its P/S ratio, Quaker Chemical would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.4% last year. The latest three year period has also seen an excellent 38% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 1.2% over the next year. With the industry predicted to deliver 5.5% growth, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Quaker Chemical's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Quaker Chemical's P/S?

Quaker Chemical shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Quaker Chemical, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 3 warning signs for Quaker Chemical that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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