Aban Offshore Limited (NSE:ABAN) Stock Catapults 35% Though Its Price And Business Still Lag The Industry

Aban Offshore Limited (NSE:ABAN) shareholders have had their patience rewarded with a 35% share price jump in the last month. The last month tops off a massive increase of 115% in the last year.

In spite of the firm bounce in price, Aban Offshore's price-to-sales (or "P/S") ratio of 1x might still make it look like a strong buy right now compared to the wider Energy Services industry in India, where around half of the companies have P/S ratios above 4.6x and even P/S above 7x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Aban Offshore

What Does Aban Offshore's Recent Performance Look Like?

Revenue has risen firmly for Aban Offshore recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for Aban Offshore, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Aban Offshore's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 18% last year. Still, revenue has fallen 50% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 12% shows it's an unpleasant look.

With this in mind, we understand why Aban Offshore's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

Aban Offshore's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

It's no surprise that Aban Offshore maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 3 warning signs for Aban Offshore (1 shouldn't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on Aban Offshore, 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.