NRC Group ASA's (OB:NRC) Revenues Are Not Doing Enough For Some Investors

NRC Group ASA's (OB:NRC) price-to-sales (or "P/S") ratio of 0.1x might make it look like a buy right now compared to the Construction industry in Norway, where around half of the companies have P/S ratios above 1x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for NRC Group

How NRC Group Has Been Performing

NRC Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on NRC Group.

Do Revenue Forecasts Match The Low P/S Ratio?

NRC Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 5.6% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 6.7% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 1.5% over the next year. With the industry predicted to deliver 70% growth, the company is positioned for a weaker revenue result.

With this information, we can see why NRC Group is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From NRC Group's 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.

We've established that NRC Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

We don't want to rain on the parade too much, but we did also find 1 warning sign for NRC Group that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com