With A 34% Price Drop For Eos Energy Enterprises, Inc. (NASDAQ:EOSE) You'll Still Get What You Pay For

To the annoyance of some shareholders, Eos Energy Enterprises, Inc. (NASDAQ:EOSE) shares are down a considerable 34% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 62% loss during that time.

Even after such a large drop in price, when almost half of the companies in the United States' Electrical industry have price-to-sales ratios (or "P/S") below 1.7x, you may still consider Eos Energy Enterprises as a stock not worth researching with its 8.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Eos Energy Enterprises

How Eos Energy Enterprises Has Been Performing

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.

Keen to find out how analysts think Eos Energy Enterprises' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Eos Energy Enterprises?

The only time you'd be truly comfortable seeing a P/S as steep as Eos Energy Enterprises' is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.6%. In spite of this, the company still managed to deliver immense revenue growth over the last three years. 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 three years should generate growth of 256% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 34% per year, which is noticeably less attractive.

With this information, we can see why Eos Energy Enterprises is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Eos Energy Enterprises' P/S

A significant share price dive has done very little to deflate Eos Energy Enterprises' very lofty P/S. 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.

We've established that Eos Energy Enterprises maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electrical industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Eos Energy Enterprises, and understanding these should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.