Improved Revenues Required Before Woodside Energy Group Ltd (ASX:WDS) Shares Find Their Feet

With a price-to-sales (or "P/S") ratio of 2.5x Woodside Energy Group Ltd (ASX:WDS) may be sending bullish signals at the moment, given that almost half of all the Oil and Gas companies in Australia have P/S ratios greater than 4.1x and even P/S higher than 80x are not unusual. 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 Woodside Energy Group

What Does Woodside Energy Group's Recent Performance Look Like?

Woodside Energy Group has been struggling lately as its revenue has declined faster than most other companies. It seems that many are expecting the dismal revenue performance to persist, which has repressed the P/S. You'd much rather the company improve its revenue performance if you still believe in the business. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to 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 Woodside Energy Group will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Woodside Energy Group would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 17% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 289% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 2.4% per year during the coming three years according to the analysts following the company. Meanwhile, the broader industry is forecast to expand by 12% per annum, which paints a poor picture.

With this information, we are not surprised that Woodside Energy Group is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What Does Woodside Energy Group's P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Woodside Energy Group's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Woodside Energy Group's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Woodside Energy Group (1 is potentially serious!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Woodside Energy Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.