Deep Value Driller AS' (OB:DVD) 38% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

Deep Value Driller AS (OB:DVD) shareholders that were waiting for something to happen have been dealt a blow with a 38% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 55% share price decline.

In spite of the heavy fall in price, when almost half of the companies in Norway's Energy Services industry have price-to-sales ratios (or "P/S") below 0.8x, you may still consider Deep Value Driller as a stock probably not worth researching with its 1.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Deep Value Driller

How Deep Value Driller Has Been Performing

With revenue growth that's superior to most other companies of late, Deep Value Driller has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Deep Value Driller?

The only time you'd be truly comfortable seeing a P/S as high as Deep Value Driller's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. In spite of this unbelievable short-term growth, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should generate growth of 6.8% as estimated by the sole analyst watching the company. With the industry predicted to deliver 9.4% growth, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Deep Value Driller is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

There's still some elevation in Deep Value Driller's P/S, even if the same can't be said for its share price recently. 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've concluded that Deep Value Driller currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

Before you settle on your opinion, we've discovered 6 warning signs for Deep Value Driller (4 are concerning!) that you should be aware of.

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.