A Piece Of The Puzzle Missing From Great Lakes Dredge & Dock Corporation's (NASDAQ:GLDD) 27% Share Price Climb

Despite an already strong run, Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days bring the annual gain to a very sharp 55%.

In spite of the firm bounce in price, there still wouldn't be many who think Great Lakes Dredge & Dock's price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in the United States' Construction industry is similar at about 0.8x. 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 Great Lakes Dredge & Dock

What Does Great Lakes Dredge & Dock's Recent Performance Look Like?

Great Lakes Dredge & Dock could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

In order to justify its P/S ratio, Great Lakes Dredge & Dock would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 24% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 28% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 8.6% growth forecast for the broader industry.

With this information, we find it interesting that Great Lakes Dredge & Dock is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Great Lakes Dredge & Dock's P/S?

Its shares have lifted substantially and now Great Lakes Dredge & Dock's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Looking at Great Lakes Dredge & Dock's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Great Lakes Dredge & Dock, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Great Lakes Dredge & Dock, 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.