Clean Energy Fuels Corp.'s (NASDAQ:CLNE) Share Price Could Signal Some Risk
When you see that almost half of the companies in the Oil and Gas industry in the United States have price-to-sales ratios (or "P/S") below 1.4x, Clean Energy Fuels Corp. (NASDAQ:CLNE) looks to be giving off some sell signals with its 2.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Clean Energy Fuels
How Clean Energy Fuels Has Been Performing
Clean Energy Fuels certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Clean Energy Fuels' future stacks up against the industry? In that case, our free report is a great place to start.
Is There Enough Revenue Growth Forecasted For Clean Energy Fuels?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Clean Energy Fuels' to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 79% last year. The latest three year period has also seen an excellent 33% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the five analysts covering the company are not good at all, suggesting revenue should decline by 12% over the next year. The industry is also set to see revenue decline 9.8% but the stock is shaping up to perform materially worse.
With this information, it's strange that Clean Energy Fuels is trading at a higher P/S in comparison. With revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. Maintaining these prices will be extremely difficult to achieve as the weak outlook is likely to weigh down the shares eventually.
The Key Takeaway
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.
We've established that Clean Energy Fuels currently trades on a much higher than expected P/S since its revenue forecast is even worse than the struggling industry. Revenue outlooks like this don't typically support a company trading at such an elevated P/S, and if it did, it doesn't usually do it for long. In addition, we would be concerned whether the company's revenue prospects could slide further under these tough industry conditions. Unless there's a material improvement in the forecast revenue growth for the company, it's hard to justify the share price at current levels.
It is also worth noting that we have found 1 warning sign for Clean Energy Fuels that you need to take into consideration.
If you're unsure about the strength of Clean Energy Fuels' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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