Eos Energy Enterprises, Inc.'s (NASDAQ:EOSE) P/S Is Still On The Mark Following 48% Share Price Bounce

Eos Energy Enterprises, Inc. (NASDAQ:EOSE) shareholders would be excited to see that the share price has had a great month, posting a 48% gain and recovering from prior weakness. But the last month did very little to improve the 74% share price decline over the last year.

Following the firm bounce in price, when almost half of the companies in the United States' Electrical industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Eos Energy Enterprises as a stock not worth researching with its 15.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Eos Energy Enterprises

What Does Eos Energy Enterprises' P/S Mean For Shareholders?

Eos Energy Enterprises could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

Eos Energy Enterprises' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 40%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Turning to the outlook, the next year should generate growth of 821% as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 13%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Eos Energy Enterprises' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Eos Energy Enterprises' P/S

The strong share price surge has lead to Eos Energy Enterprises' P/S soaring as well. 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.

Our look into Eos Energy Enterprises shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Eos Energy Enterprises (at least 3 which can't be ignored), and understanding these should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com