Even With A 33% Surge, Cautious Investors Are Not Rewarding Eneraqua Technologies plc's (LON:ETP) Performance Completely

The Eneraqua Technologies plc (LON:ETP) share price has done very well over the last month, posting an excellent gain of 33%. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 61% share price drop in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think Eneraqua Technologies' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in the United Kingdom's Building industry is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Eneraqua Technologies

How Eneraqua Technologies Has Been Performing

The recently shrinking revenue for Eneraqua Technologies has been in line with the industry. It seems that few are expecting the company's revenue performance to deviate much from most other companies, which has held the P/S back. You'd much rather the company improve its revenue if you still believe in the business. At the very least, you'd be hoping that revenue doesn't accelerate downwards if your plan is to pick up some stock while it's not in favour.

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

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

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.3%. Even so, admirably revenue has lifted 269% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 25% per annum during the coming three years according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 3.4% per annum, which is noticeably less attractive.

With this in consideration, we find it intriguing that Eneraqua Technologies' P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Eneraqua Technologies' P/S Mean For Investors?

Eneraqua Technologies appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We've established that Eneraqua Technologies currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Eneraqua Technologies that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

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