Subdued Growth No Barrier To Asian Energy Services Limited (NSE:ASIANENE) With Shares Advancing 41%

Despite an already strong run, Asian Energy Services Limited (NSE:ASIANENE) shares have been powering on, with a gain of 41% in the last thirty days. The last month tops off a massive increase of 242% in the last year.

After such a large jump in price, Asian Energy Services may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 6.7x, since almost half of all companies in the Energy Services in India have P/S ratios under 4.6x and even P/S lower than 2x are not unusual. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Asian Energy Services

What Does Asian Energy Services' Recent Performance Look Like?

As an illustration, revenue has deteriorated at Asian Energy Services over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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.

Is There Enough Revenue Growth Forecasted For Asian Energy Services?

The only time you'd be truly comfortable seeing a P/S as high as Asian Energy Services' is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's top line. As a result, revenue from three years ago have also fallen 50% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 17% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that Asian Energy Services' P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

The large bounce in Asian Energy Services' shares has lifted the company's P/S handsomely. 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 Asian Energy Services currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Asian Energy Services is showing 4 warning signs in our investment analysis, and 2 of those shouldn't be ignored.

If these risks are making you reconsider your opinion on Asian Energy Services, 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.