Little Excitement Around Electromagnetic Geoservices ASA's (OB:EMGS) Revenues As Shares Take 81% Pounding

Electromagnetic Geoservices ASA (OB:EMGS) shareholders that were waiting for something to happen have been dealt a blow with a 81% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 88% share price decline.

Since its price has dipped substantially, given about half the companies operating in Norway's Energy Services industry have price-to-sales ratios (or "P/S") above 0.8x, you may consider Electromagnetic Geoservices as an attractive investment with its 0.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for Electromagnetic Geoservices

What Does Electromagnetic Geoservices' P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Electromagnetic Geoservices has been doing very well. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Electromagnetic Geoservices' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Electromagnetic Geoservices' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 81% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 2.0% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 13% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's understandable that Electromagnetic Geoservices' P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does Electromagnetic Geoservices' P/S Mean For Investors?

Electromagnetic Geoservices' recently weak share price has pulled its P/S back below other Energy Services companies. 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.

Our examination of Electromagnetic Geoservices confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Electromagnetic Geoservices, and understanding these should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.