Shelf Drilling, Ltd. (OB:SHLF) Screens Well But There Might Be A Catch

When close to half the companies operating in the Energy Services industry in Norway have price-to-sales ratios (or "P/S") above 1.1x, you may consider Shelf Drilling, Ltd. (OB:SHLF) as an attractive investment with its 0.5x 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.

See our latest analysis for Shelf Drilling

What Does Shelf Drilling's P/S Mean For Shareholders?

Shelf Drilling's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on Shelf Drilling will be hoping that this isn't the case.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shelf Drilling.

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

Shelf Drilling'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.

Taking a look back first, we see that the company grew revenue by an impressive 32% last year. As a result, it also grew revenue by 21% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 15% per year over the next three years. That's shaping up to be materially higher than the 2.7% per annum growth forecast for the broader industry.

With this information, we find it odd that Shelf Drilling is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does Shelf Drilling's P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Shelf Drilling's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Before you take the next step, you should know about the 2 warning signs for Shelf Drilling that we have uncovered.

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.