Babcock & Wilcox Enterprises, Inc. (NYSE:BW) Surges 40% Yet Its Low P/S Is No Reason For Excitement

Despite an already strong run, Babcock & Wilcox Enterprises, Inc. (NYSE:BW) shares have been powering on, with a gain of 40% in the last thirty days. The last 30 days bring the annual gain to a very sharp 39%.

Although its price has surged higher, Babcock & Wilcox Enterprises' price-to-sales (or "P/S") ratio of 0.2x might still make it look like a buy right now compared to the Electrical industry in the United States, where around half of the companies have P/S ratios above 2.1x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Babcock & Wilcox Enterprises

What Does Babcock & Wilcox Enterprises' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Babcock & Wilcox Enterprises has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Babcock & Wilcox Enterprises would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.5% last year. Still, lamentably revenue has fallen 18% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 7.6% over the next year. Meanwhile, the rest of the industry is forecast to expand by 12%, which is noticeably more attractive.

In light of this, it's understandable that Babcock & Wilcox Enterprises' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Babcock & Wilcox Enterprises' P/S

The latest share price surge wasn't enough to lift Babcock & Wilcox Enterprises' P/S close to the industry median. 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.

As we suspected, our examination of Babcock & Wilcox Enterprises' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

It is also worth noting that we have found 4 warning signs for Babcock & Wilcox Enterprises (2 are a bit concerning!) that you need to take into consideration.

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.