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Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Compass Minerals International.

For companies where sales are a more stable reference point than earnings, the P/S ratio can be a useful way to think about what you are paying for each dollar of revenue.

What counts as a reasonable P/S multiple usually reflects how the market views a company’s growth potential and risk profile. Higher expected growth and lower perceived risk tend to support higher multiples, while slower expected growth or higher risk often line up with lower ones.

Compass Minerals International currently trades on a P/S of 0.78x. That sits well below the Metals and Mining industry average P/S of 3.16x and also below the peer average of 9.84x that Simply Wall St tracks for this group. On headline comparisons alone, the stock screens as cheaper than both its sector and similar companies on a sales basis.

Simply Wall St’s Fair Ratio takes this a step further. It estimates what a more tailored P/S might look like, based on factors such as earnings growth, industry, profit margins, market cap and company specific risks. Because it adjusts for these elements, it can be more informative than raw peer or industry comparisons.

For Compass Minerals International, the Fair Ratio is 0.61x versus the current 0.78x. That gap points to the shares looking overvalued relative to this customised benchmark.

Result: OVERVALUED

P/S ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1442 companies where insiders are betting big on explosive growth.

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, which are simply your story about Compass Minerals International. A Narrative links your assumptions for future revenue, earnings, margins and fair value to a clear financial forecast that you can compare with today’s share price. All of this is available within an easy tool on Simply Wall St’s Community page that updates automatically when new earnings or news arrive. This allows you to see in real time whether your Fair Value suggests the shares look more attractive or less attractive than the current US$23.29 price. You can also see how other investors frame the same stock. For example, some may build a Narrative around the US$20.75 fair value and modest revenue growth and margin assumptions, while others use more cautious or more optimistic inputs, giving you a range of perspectives to weigh against your own view.

Do you think there’s more to the story for Compass Minerals International? Head over to our Community to see what others are saying!

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.

Companies discussed in this article include CMP.

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