There's Reason For Concern Over Bloom Energy Corporation's (NYSE:BE) Price
When close to half the companies in the Electrical industry in the United States have price-to-sales ratios (or "P/S") below 1.9x, you may consider Bloom Energy Corporation (NYSE:BE) as a stock to potentially avoid with its 2.6x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Bloom Energy
What Does Bloom Energy's Recent Performance Look Like?
Recent times have been advantageous for Bloom Energy as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on analyst estimates for the company? Then our free report on Bloom Energy will help you uncover what's on the horizon.
How Is Bloom Energy's Revenue Growth Trending?
Bloom Energy's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
Taking a look back first, we see that the company grew revenue by an impressive 30% last year. Pleasingly, revenue has also lifted 60% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 29% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 33% per annum growth forecast for the broader industry.
With this in consideration, we believe it doesn't make sense that Bloom Energy's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
The Key Takeaway
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.
It comes as a surprise to see Bloom Energy trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Bloom Energy that you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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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