Why Investors Shouldn't Be Surprised By Solstad Offshore ASA's (OB:SOFF) Low P/S

When you see that almost half of the companies in the Energy Services industry in Norway have price-to-sales ratios (or "P/S") above 1.2x, Solstad Offshore ASA (OB:SOFF) looks to be giving off some buy signals with its 0.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Solstad Offshore

What Does Solstad Offshore's P/S Mean For Shareholders?

Recent times haven't been great for Solstad Offshore as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Solstad Offshore's Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 10.0% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 43% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 11% as estimated by the lone analyst watching the company. Meanwhile, the broader industry is forecast to expand by 24%, which paints a poor picture.

With this in consideration, we find it intriguing that Solstad Offshore's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Solstad Offshore's P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Solstad Offshore's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Solstad Offshore's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Solstad Offshore (including 1 which is significant).

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.