Investors Aren't Entirely Convinced By Vertex Energy, Inc.'s (NASDAQ:VTNR) Revenues
Vertex Energy, Inc.'s (NASDAQ:VTNR) price-to-sales (or "P/S") ratio of 0.2x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Oil and Gas industry in the United States have P/S ratios greater than 1.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
View our latest analysis for Vertex Energy
What Does Vertex Energy's Recent Performance Look Like?
Recent times have been advantageous for Vertex Energy as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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 out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Vertex Energy.
How Is Vertex Energy's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as Vertex Energy's is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, we see the company's revenues grew exponentially. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to remain somewhat buoyant, growing by 4.0% per annum during the coming three years according to the six analysts following the company. While this isn't a particularly impressive figure, it should be noted that the the industry is expected to decline by 4.6% per year.
In light of this, it's quite peculiar that Vertex Energy's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the contrarian forecasts and have been accepting significantly lower selling prices.
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 Vertex Energy's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't contributing to its P/S anywhere near as much as we would have predicted. When we see a superior revenue outlook with some actual growth, we can only assume investor uncertainty is what's been suppressing the P/S figures. Amidst challenging industry conditions, a key concern is whether the company can sustain its superior revenue growth trajectory. So, the risk of a price drop looks to be subdued, but investors seem to think future revenue could see a lot of volatility.
You should always think about risks. Case in point, we've spotted 1 warning sign for Vertex Energy you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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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