Gulf Navigation Holding PJSC's (DFM:GULFNAV) 32% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

Gulf Navigation Holding PJSC (DFM:GULFNAV) shareholders won't be pleased to see that the share price has had a very rough month, dropping 32% and undoing the prior period's positive performance. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 19%.

Even after such a large drop in price, when almost half of the companies in the United Arab Emirates' Shipping industry have price-to-sales ratios (or "P/S") below 1.5x, you may still consider Gulf Navigation Holding PJSC as a stock not worth researching with its 45.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

View our latest analysis for Gulf Navigation Holding PJSC

What Does Gulf Navigation Holding PJSC's Recent Performance Look Like?

Gulf Navigation Holding PJSC certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Gulf Navigation Holding PJSC's earnings, revenue and cash flow.

How Is Gulf Navigation Holding PJSC's Revenue Growth Trending?

Gulf Navigation Holding PJSC's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 33% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 18% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to shrink 4.2% in the next 12 months, the company's downward momentum is still inferior based on recent medium-term annualised revenue results.

With this information, it's strange that Gulf Navigation Holding PJSC is trading at a higher P/S in comparison. In general, when revenue shrink rapidly the P/S premium often shrinks too, which could set up shareholders for future disappointment. Maintaining these prices will be extremely difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From Gulf Navigation Holding PJSC's P/S?

Gulf Navigation Holding PJSC's shares may have suffered, but its P/S remains high. 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 Gulf Navigation Holding PJSC revealed its sharp three-year contraction in revenue isn't impacting its high P/S anywhere near as much as we would have predicted, given the industry is set to shrink less severely. Right now we aren't comfortable with the high P/S as this revenue performance is unlikely to support such positive sentiment for long. We're also cautious about the company's ability to stay its recent medium-term course and resist even greater pain to its business from the broader industry turmoil. This would place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Gulf Navigation Holding PJSC 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.