i3 Energy Plc (LON:I3E) Might Not Be As Mispriced As It Looks

It's not a stretch to say that i3 Energy Plc's (LON:I3E) price-to-sales (or "P/S") ratio of 0.9x seems quite "middle-of-the-road" for Oil and Gas companies in the United Kingdom, seeing as it matches the P/S ratio of the wider industry. 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.

View our latest analysis for i3 Energy

What Does i3 Energy's P/S Mean For Shareholders?

With revenue that's retreating more than the industry's average of late, i3 Energy has been very sluggish. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think i3 Energy's future stacks up against the industry? In that case, our free report is a great place to start.

How Is i3 Energy's Revenue Growth Trending?

i3 Energy's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

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 33%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 13% per annum during the coming three years according to the four analysts following the company. That would be an excellent outcome when the industry is expected to decline by 0.06% each year.

With this information, we find it odd that i3 Energy is trading at a fairly similar P/S to the industry. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of i3 Energy's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. The market could be pricing in the event that tough industry conditions will impact future revenues. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

You always need to take note of risks, for example - i3 Energy has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on i3 Energy, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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