Stock Analysis

Investors Interested In Energean plc's (LON:ENOG) Revenues

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When you see that almost half of the companies in the Oil and Gas industry in the United Kingdom have price-to-sales ratios (or "P/S") below 0.9x, Energean plc (LON:ENOG) looks to be giving off some sell signals with its 2.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Energean

LSE:ENOG Price to Sales Ratio vs Industry December 19th 2023

How Energean Has Been Performing

Recent times have been advantageous for Energean as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Energean will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Energean would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 56% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next three years should demonstrate the company's robustness, generating growth of 37% each year as estimated by the eight analysts watching the company. That would be an excellent outcome when the industry is expected to decline by 1.4% each year.

With this information, we can see why Energean is trading at such a high P/S compared to the industry. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader industry going backwards.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Energean's analyst forecasts revealed that its superior revenue outlook against a shaky industry is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Our only concern is whether its revenue trajectory can keep outperforming under these tough industry conditions. Although, if the company's prospects don't change they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Energean (1 is a bit concerning!) that you need to be mindful of.

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

Valuation is complex, but we're helping make it simple.

Find out whether Energean is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.