Prosafe SE (OB:PRS) Held Back By Insufficient Growth Even After Shares Climb 64%

Prosafe SE (OB:PRS) shareholders are no doubt pleased to see that the share price has bounced 64% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 78% share price decline over the last year.

Although its price has surged higher, considering around half the companies operating in Norway's Energy Services industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Prosafe as an solid investment opportunity 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.

See our latest analysis for Prosafe

What Does Prosafe's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Prosafe has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Prosafe's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Prosafe?

Prosafe's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. 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 14% as estimated by the two analysts watching the company. With the industry predicted to deliver 17% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Prosafe's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Prosafe's P/S?

Despite Prosafe's share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of Prosafe's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Prosafe you should be aware of, and 1 of them doesn't sit too well with us.

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

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.