Chesterfield Special Cylinders Holdings Plc (LON:CSC) Screens Well But There Might Be A Catch

It's not a stretch to say that Chesterfield Special Cylinders Holdings Plc's (LON:CSC) price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" for companies in the Energy Services industry in the United Kingdom, where the median P/S ratio is around 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Check out our latest analysis for Chesterfield Special Cylinders Holdings

What Does Chesterfield Special Cylinders Holdings' P/S Mean For Shareholders?

Recent times haven't been great for Chesterfield Special Cylinders Holdings as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is Chesterfield Special Cylinders Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, Chesterfield Special Cylinders Holdings would need to produce growth that's similar to the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 32% overall from three years ago. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 29% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 2.0%, which is noticeably less attractive.

With this information, we find it interesting that Chesterfield Special Cylinders Holdings is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Chesterfield Special Cylinders Holdings currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Chesterfield Special Cylinders Holdings that you should be aware 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.

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

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.