Market Might Still Lack Some Conviction On Interoil Exploration and Production ASA (OB:IOX) Even After 28% Share Price Boost

Those holding Interoil Exploration and Production ASA (OB:IOX) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 61% share price decline over the last year.

Even after such a large jump in price, when close to half the companies operating in Norway's Oil and Gas industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Interoil Exploration and Production as an enticing stock to check out with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Interoil Exploration and Production

How Has Interoil Exploration and Production Performed Recently?

Interoil Exploration and Production certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. 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.

Although there are no analyst estimates available for Interoil Exploration and Production, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 70% gain to the company's top line. Pleasingly, revenue has also lifted 115% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

In contrast to the company, the rest of the industry is expected to decline by 5.6% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

With this information, we find it very odd that Interoil Exploration and Production is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

What Does Interoil Exploration and Production's P/S Mean For Investors?

Despite Interoil Exploration and Production's share price climbing recently, its P/S still lags most other 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 Interoil Exploration and Production revealed that despite growing revenue over the medium-term in a shrinking industry, the P/S doesn't reflect this as it's lower than the industry average. One assumption would be that there are some underlying risks to revenue that are keeping the P/S from rising to match the its strong performance. The most obvious risk is that its revenue trajectory may not keep outperforming under these tough industry conditions. While the chance of the share price dropping sharply is fairly remote, investors do seem to be anticipating future revenue instability.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Interoil Exploration and Production that you should be aware of.

If you're unsure about the strength of Interoil Exploration and Production's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.