Risks To Shareholder Returns Are Elevated At These Prices For Oil States International, Inc. (NYSE:OIS)
There wouldn't be many who think Oil States International, Inc.'s (NYSE:OIS) price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S for the Energy Services industry in the United States is similar at about 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
View our latest analysis for Oil States International
What Does Oil States International's Recent Performance Look Like?
With revenue growth that's inferior to most other companies of late, Oil States International has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
Want the full picture on analyst estimates for the company? Then our free report on Oil States International will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The P/S?
The only time you'd be comfortable seeing a P/S like Oil States International's is when the company's growth is tracking the industry closely.
Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 22% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.
Looking ahead now, revenue is anticipated to climb by 12% during the coming year according to the four analysts following the company. That's shaping up to be materially lower than the 16% growth forecast for the broader industry.
With this information, we find it interesting that Oil States International is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
What Does Oil States International's P/S Mean For Investors?
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
When you consider that Oil States International's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.
Before you settle on your opinion, we've discovered 2 warning signs for Oil States International that you should be aware of.
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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