Investors Don't See Light At End Of Aris Water Solutions, Inc.'s (NYSE:ARIS) Tunnel
With a price-to-sales (or "P/S") ratio of 0.7x Aris Water Solutions, Inc. (NYSE:ARIS) may be sending bullish signals at the moment, given that almost half of all the Commercial Services companies in the United States have P/S ratios greater than 1.3x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
See our latest analysis for Aris Water Solutions
How Has Aris Water Solutions Performed Recently?
With revenue growth that's superior to most other companies of late, Aris Water Solutions has been doing relatively well. 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 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.
Want the full picture on analyst estimates for the company? Then our free report on Aris Water Solutions will help you uncover what's on the horizon.
Is There Any Revenue Growth Forecasted For Aris Water Solutions?
The only time you'd be truly comfortable seeing a P/S as low as Aris Water Solutions' is when the company's growth is on track to lag the industry.
Retrospectively, the last year delivered an exceptional 40% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 170% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 13% each year as estimated by the five analysts watching the company. With the industry predicted to deliver 92% growth per year, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why Aris Water Solutions' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Bottom Line On Aris Water Solutions' P/S
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
As expected, our analysis of Aris Water Solutions' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.
You need to take note of risks, for example - Aris Water Solutions has 5 warning signs (and 2 which can't be ignored) we think you should know about.
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).
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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