Investors Holding Back On ENEOS Holdings, Inc. (TSE:5020)

There wouldn't be many who think ENEOS Holdings, Inc.'s (TSE:5020) price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S for the Oil and Gas industry in Japan is very similar. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for ENEOS Holdings

How ENEOS Holdings Has Been Performing

ENEOS Holdings has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market is expecting future revenue performance to begin matching the rest of the industry, which has kept the P/S from declining. You'd much rather the company improve its revenue if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For ENEOS Holdings?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.0%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 66% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should demonstrate some strength in company's business, generating growth of 0.3% each year as estimated by the seven analysts watching the company. This isn't typically strong growth, but with the rest of the industry predicted to shrink by 1.8% per year, that would be a solid result.

Even though the growth is only slight, it's peculiar that ENEOS Holdings' P/S sits in line with the majority of other companies given the industry is set for a decline. 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

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.

We note that even though ENEOS Holdings trades at a similar P/S as the rest of the industry, it far eclipses them in terms of forecasted revenue growth. We assume that investors are attributing some risk to the company's future revenues, keeping it from trading at a higher P/S. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. It appears some are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with ENEOS Holdings (at least 1 which is significant), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on ENEOS Holdings, 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.