Neste Oyj (HEL:NESTE) Might Not Be As Mispriced As It Looks After Plunging 28%

Unfortunately for some shareholders, the Neste Oyj (HEL:NESTE) share price has dived 28% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 67% loss during that time.

After such a large drop in price, given about half the companies operating in Finland's Oil and Gas industry have price-to-sales ratios (or "P/S") above 1.2x, you may consider Neste Oyj as an attractive investment with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Neste Oyj

What Does Neste Oyj's P/S Mean For Shareholders?

Neste Oyj's negative revenue growth of late has neither been better nor worse than most other companies. Perhaps the market is expecting future revenue performance to deteriorate further, which has kept the P/S suppressed. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. At the very least, you'd be hoping that revenue doesn't fall off a cliff 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 Neste Oyj will help you uncover what's on the horizon.

How Is Neste Oyj's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 10.0%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 36% 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.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 5.7% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 1.3% per year, which is noticeably less attractive.

With this information, we find it odd that Neste Oyj is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does Neste Oyj's P/S Mean For Investors?

Neste Oyj's P/S has taken a dip along with its share price. 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.

A look at Neste Oyj's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

It is also worth noting that we have found 2 warning signs for Neste Oyj (1 makes us a bit uncomfortable!) that you need to take into consideration.

If you're unsure about the strength of Neste Oyj's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.