Borr Drilling Limited's (OB:BORR) P/S Is On The Mark

When you see that almost half of the companies in the Energy Services industry in Norway have price-to-sales ratios (or "P/S") below 1.1x, Borr Drilling Limited (OB:BORR) looks to be giving off strong sell signals with its 3.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Borr Drilling

What Does Borr Drilling's Recent Performance Look Like?

Recent times have been advantageous for Borr Drilling as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Borr Drilling's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 91% gain to the company's top line. The latest three year period has also seen an excellent 38% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 50% over the next year. That's shaping up to be materially higher than the 32% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Borr Drilling's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Borr Drilling's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Borr Drilling maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Energy Services industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Borr Drilling that you should be aware of.

If these risks are making you reconsider your opinion on Borr Drilling, 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.