Enviva Inc. (NYSE:EVA) Could Be Riskier Than It Looks
There wouldn't be many who think Enviva Inc.'s (NYSE:EVA) price-to-sales (or "P/S") ratio of 1.6x is worth a mention when the median P/S for the Oil and Gas industry in the United States is similar at about 1.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
View our latest analysis for Enviva
What Does Enviva's P/S Mean For Shareholders?
Enviva could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
Keen to find out how analysts think Enviva'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?
Enviva'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 managed to grow revenues by a handy 5.0% last year. The latest three year period has also seen an excellent 60% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.
Shifting to the future, estimates from the five analysts covering the company suggest revenue growth will be highly resilient over the next three years growing by 31% each year. Meanwhile, the broader industry is forecast to contract by 3.7% per year, which would indicate the company is doing very well.
In light of this, it's peculiar that Enviva's P/S sits in-line with the majority of other companies. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.
The Final Word
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our examination of Enviva's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. It appears some are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.
You should always think about risks. Case in point, we've spotted 3 warning signs for Enviva you should be aware of, and 1 of them is a bit unpleasant.
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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