The Market Doesn't Like What It Sees From Prosafe SE's (OB:PRS) Revenues Yet As Shares Tumble 27%

To the annoyance of some shareholders, Prosafe SE (OB:PRS) shares are down a considerable 27% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 73% share price decline.

After such a large drop in price, given about half the companies operating in Norway's Energy Services industry have price-to-sales ratios (or "P/S") above 1.1x, you may consider Prosafe as an attractive investment with its 0.3x 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

How Prosafe Has Been Performing

Prosafe could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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.

How Is Prosafe's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Prosafe's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 6.8% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 38% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 18% over the next year. That's shaping up to be materially lower than the 24% growth forecast for the broader industry.

With this information, we can see why Prosafe is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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

Prosafe's P/S has taken a dip along with its share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future 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. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Prosafe (1 is significant) you should be aware of.

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.