Investors Still Waiting For A Pull Back In Ørsted A/S (CPH:ORSTED)

Ørsted A/S' (CPH:ORSTED) price-to-sales (or "P/S") ratio of 1.6x may not look like an appealing investment opportunity when you consider close to half the companies in the Electric Utilities industry in Denmark have P/S ratios below 0.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Ørsted

How Has Ørsted Performed Recently?

Ørsted could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ørsted.

Is There Enough Revenue Growth Forecasted For Ørsted?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Ørsted's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 21% 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 77% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to remain somewhat buoyant, growing by 3.8% per year during the coming three years according to the analysts following the company. Meanwhile, the broader industry is forecast to contract by 0.5% per annum, which would indicate the company is doing better than the majority of its peers.

With this in mind, we see why Ørsted's P/S is a cut above its industry peers. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader industry going backwards.

What Does Ørsted'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.

As we suspected, our examination of Ørsted's analyst forecasts revealed that its superior revenue outlook against a shaky industry is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Our only concern is whether its revenue trajectory can keep outperforming under these tough industry conditions. Although, if the company's prospects don't change they will continue to provide strong support to the share price.

Having said that, be aware Ørsted is showing 2 warning signs in our investment analysis, 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).

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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.