FuelCell Energy, Inc.'s (NASDAQ:FCEL) P/S Is On The Mark

It's not a stretch to say that FuelCell Energy, Inc.'s (NASDAQ:FCEL) price-to-sales (or "P/S") ratio of 1.4x right now seems quite "middle-of-the-road" for companies in the Electrical industry in the United States, where the median P/S ratio is around 1.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for FuelCell Energy

How Has FuelCell Energy Performed Recently?

FuelCell Energy hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like FuelCell Energy's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 9.1% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 61% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 22% each year over the next three years. That's shaping up to be similar to the 22% per annum growth forecast for the broader industry.

With this in mind, it makes sense that FuelCell Energy's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What Does FuelCell Energy's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at FuelCell Energy's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for FuelCell Energy (of which 1 is concerning!) you should know about.

If these risks are making you reconsider your opinion on FuelCell Energy, 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.