Many Still Looking Away From Nabors Industries Ltd. (NYSE:NBR)
Nabors Industries Ltd.'s (NYSE:NBR) price-to-sales (or "P/S") ratio of 0.4x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Energy Services industry in the United States have P/S ratios greater than 1x. 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 Nabors Industries
How Has Nabors Industries Performed Recently?
There hasn't been much to differentiate Nabors Industries' and the industry's revenue growth lately. 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 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 Nabors Industries.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
In order to justify its P/S ratio, Nabors Industries would need to produce sluggish growth that's trailing the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 32%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 13% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 12% per annum over the next three years. That's shaping up to be similar to the 13% per year growth forecast for the broader industry.
With this in consideration, we find it intriguing that Nabors Industries' P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.
What Does Nabors Industries' P/S Mean For Investors?
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.
We've seen that Nabors Industries currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Nabors Industries you should know about.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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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