Improved Revenues Required Before KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) Shares Find Their Feet
When close to half the companies operating in the Energy Services industry in the United States have price-to-sales ratios (or "P/S") above 1x, you may consider KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) as an attractive investment with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for KLX Energy Services Holdings
What Does KLX Energy Services Holdings' P/S Mean For Shareholders?
KLX Energy Services Holdings certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on KLX Energy Services Holdings will help you uncover what's on the horizon.
Do Revenue Forecasts Match The Low P/S Ratio?
There's an inherent assumption that a company should underperform the industry for P/S ratios like KLX Energy Services Holdings' to be considered reasonable.
Retrospectively, the last year delivered an exceptional 58% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 81% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Turning to the outlook, the next year should generate growth of 9.6% as estimated by the sole analyst watching the company. With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.
In light of this, it's understandable that KLX Energy Services Holdings' P/S sits below the majority of other companies. 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
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.
We've established that KLX Energy Services Holdings maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.
We don't want to rain on the parade too much, but we did also find 4 warning signs for KLX Energy Services Holdings (2 are potentially serious!) that you need to be mindful of.
If these risks are making you reconsider your opinion on KLX Energy Services Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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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