Awilco LNG ASA (OB:ALNG) Stock Rockets 27% But Many Are Still Ignoring The Company

The Awilco LNG ASA (OB:ALNG) share price has done very well over the last month, posting an excellent gain of 27%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 44% over that time.

Even after such a large jump in price, it's still not a stretch to say that Awilco LNG's price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" compared to the Oil and Gas industry in Norway, where the median P/S ratio is around 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Awilco LNG

What Does Awilco LNG's P/S Mean For Shareholders?

Recent times haven't been great for Awilco LNG as its revenue has been falling quicker than most other companies. One possibility is that the P/S is moderate because investors think the company's revenue trend will eventually fall in line with most others in the industry. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Awilco LNG would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 49% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 25% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the one analyst covering the company are not great, suggesting revenue should decline by 0.8% over the next year. With the rest of the industry predicted to shrink by 5.9%, it's still an optimal result.

In light of this, the fact Awilco LNG's P/S sits in line with the majority of other companies is unanticipated but certainly not shocking. Even though the company may outperform the industry, shrinking revenues are unlikely to lead to a stable P/S long-term. There's still potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth.

The Final Word

Awilco LNG appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

In our view, Awilco LNG appears to be undervalued with its current P/S ratio being lower than anticipated, considering that its revenue projections are not as dismal as the rest of the struggling industry. Even though it's revenue prospects are better than the wider industry, we assume there are several risk factors might be placing downward pressure on the P/S, bringing it in line with the industry average. Amidst challenging industry conditions, a key concern is whether the company can sustain its superior revenue growth trajectory. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Having said that, be aware Awilco LNG is showing 3 warning signs in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.