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Ardmore Shipping Corporation's (NYSE:ASC) Price Is Out Of Tune With Revenues

With a median price-to-sales (or "P/S") ratio of close to 1.4x in the Oil and Gas industry in the United States, you could be forgiven for feeling indifferent about Ardmore Shipping Corporation's (NYSE:ASC) P/S ratio of 1.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Ardmore Shipping


How Ardmore Shipping Has Been Performing

Ardmore Shipping certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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 not quite in favour.

Keen to find out how analysts think Ardmore Shipping's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The P/S?

Ardmore Shipping's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company grew revenue by an impressive 138% last year. The latest three year period has also seen an excellent 115% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company are not good at all, suggesting revenue should decline by 47% over the next year. Meanwhile, the broader industry is forecast to moderate by 9.8%, which indicates the company should perform poorly indeed.

In light of this, it's somewhat peculiar that Ardmore Shipping's P/S sits in line with the majority of other companies. When revenue shrink rapidly the P/S often shrinks too, which could set up shareholders for future disappointment. There's potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Ardmore Shipping's P/S

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.

Ardmore Shipping's analyst forecasts have revealed that its even shakier outlook against the industry isn't impacting its P/S as much as we would have predicted. It's not unusual in cases where revenue growth is poor, that the share price declines, sending the moderate P/S lower relative to the industry. We're also cautious about the company's ability to resist even greater pain to its business from the broader industry turmoil. This presents a risk to investors if the P/S were to decline to a level that more accurately reflects the company's revenue prospects.

It is also worth noting that we have found 3 warning signs for Ardmore Shipping (1 is a bit concerning!) that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have 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.

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