Slammed 63% Dolphin Drilling AS (OB:DDRIL) Screens Well Here But There Might Be A Catch

Dolphin Drilling AS (OB:DDRIL) shareholders that were waiting for something to happen have been dealt a blow with a 63% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 80% share price decline.

Although its price has dipped substantially, there still wouldn't be many who think Dolphin Drilling's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Norway's Energy Services industry is similar at about 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Dolphin Drilling

How Dolphin Drilling Has Been Performing

Recent times haven't been great for Dolphin Drilling as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Dolphin Drilling will help you uncover what's on the horizon.

How Is Dolphin Drilling's Revenue Growth Trending?

Dolphin Drilling's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 23% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 14% each year over the next three years. With the industry only predicted to deliver 3.9% per year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Dolphin Drilling's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Dolphin Drilling looks to be in line with the rest of the Energy Services 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.

Despite enticing revenue growth figures that outpace the industry, Dolphin Drilling's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Dolphin Drilling (of which 1 makes us a bit uncomfortable!) you should know about.

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).

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

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.