Revenues Tell The Story For Vallourec S.A. (EPA:VK)

There wouldn't be many who think Vallourec S.A.'s (EPA:VK) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Energy Services industry in France is similar at about 0.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Vallourec

How Has Vallourec Performed Recently?

While the industry has experienced revenue growth lately, Vallourec's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Vallourec's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Vallourec's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 10% 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 54% 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.

Turning to the outlook, the next three years should generate growth of 0.4% per annum as estimated by the five analysts watching the company. That's shaping up to be similar to the 1.5% each year growth forecast for the broader industry.

With this information, we can see why Vallourec is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Vallourec's P/S?

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.

A Vallourec's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Energy Services industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Vallourec with six simple checks on some of these key factors.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com