AGL Energy Limited's (ASX:AGL) Price Is Right But Growth Is Lacking

Simply Wall St.09-30

When you see that almost half of the companies in the Integrated Utilities industry in Australia have price-to-sales ratios (or "P/S") above 1.7x, AGL Energy Limited (ASX:AGL) looks to be giving off ...

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Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.     View our latest analysis for AGL Energy ASX:AGL Price to Sales Ratio vs Industry September 30th 2024 How Has AGL Energy Performed Recently?  Recent times have been more advantageous for AGL Energy as its revenue hasn't fallen as much as the rest of the industry.   It might be that many expect the comparatively superior revenue performance to degrade substantially, which has repressed the P/S.  So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.  In saying that, existing shareholders probably aren't pessimistic about the share price if the company's revenue continues outplaying the industry.      If you'd like to see what analysts are forecasting going forward, you should check out our free report on AGL Energy.  Is There Any Revenue Growth Forecasted For AGL Energy?   In order to justify its P/S ratio, AGL Energy would need to produce sluggish growth that's trailing the industry.   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 4.1%.   That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 24% in total.  Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.     Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 0.9% per year over the next three years.  That's shaping up to be materially lower than the 5.4% each year growth forecast for the broader industry.  With this information, we can see why AGL Energy is trading at a P/S lower than the industry.  It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.    The Key Takeaway  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.  As we suspected, our examination of AGL Energy's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S.  Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S.  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 before investing and we've discovered 1 warning sign for AGL Energy that you should be aware of.   Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly. New: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2471823005"}