Asian Energy Services Limited (NSE:ASIANENE) May Have Run Too Fast Too Soon With Recent 25% Price Plummet

Asian Energy Services Limited (NSE:ASIANENE) shares have had a horrible month, losing 25% after a relatively good period beforehand. The good news is that in the last year, the stock has shone bright like a diamond, gaining 188%.

In spite of the heavy fall in price, there still wouldn't be many who think Asian Energy Services' price-to-sales (or "P/S") ratio of 4.4x is worth a mention when the median P/S in India's Energy Services industry is similar at about 4x. 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 Asian Energy Services

How Asian Energy Services Has Been Performing

With revenue growth that's exceedingly strong of late, Asian Energy Services has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Asian Energy Services will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Asian Energy Services will help you shine a light on its historical performance.

How Is Asian Energy Services' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 50% gain to the company's top line. Still, revenue has fallen 17% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 18% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Asian Energy Services is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Asian Energy Services' P/S?

Following Asian Energy Services' share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Our look at Asian Energy Services revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Having said that, be aware Asian Energy Services is showing 2 warning signs in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.