Shelf Drilling, Ltd. (OB:SHLF) Not Doing Enough For Some Investors As Its Shares Slump 25%

To the annoyance of some shareholders, Shelf Drilling, Ltd. (OB:SHLF) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 24% share price drop.

Since its price has dipped substantially, it would be understandable if you think Shelf Drilling is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.4x, considering almost half the companies in Norway's Energy Services industry have P/S ratios above 1.1x. 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 Shelf Drilling

How Shelf Drilling Has Been Performing

With revenue growth that's inferior to most other companies of late, Shelf Drilling 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.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Shelf Drilling would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 29% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 51% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 9.8% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 13% per annum, which is noticeably more attractive.

In light of this, it's understandable that Shelf Drilling's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

The southerly movements of Shelf Drilling's shares means its P/S is now sitting at a pretty low level. 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.

We've established that Shelf Drilling maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Shelf Drilling that you should be aware of.

If these risks are making you reconsider your opinion on Shelf Drilling, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.