Revenues Tell The Story For Herc Holdings Inc. (NYSE:HRI) As Its Stock Soars 25%

Herc Holdings Inc. (NYSE:HRI) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 4.8% isn't as attractive.

In spite of the firm bounce in price, there still wouldn't be many who think Herc Holdings' price-to-sales (or "P/S") ratio of 1.2x is worth a mention when it essentially matches the median P/S in the United States' Trade Distributors industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Herc Holdings

What Does Herc Holdings' P/S Mean For Shareholders?

Recent times haven't been great for Herc Holdings as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. 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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Is There Some Revenue Growth Forecasted For Herc Holdings?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. This was backed up an excellent period prior to see revenue up by 62% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 16% each year over the next three years. With the industry predicted to deliver 18% growth per year, the company is positioned for a comparable revenue result.

With this information, we can see why Herc Holdings is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Herc Holdings' P/S

Herc Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We've seen that Herc Holdings maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Before you settle on your opinion, we've discovered 5 warning signs for Herc Holdings (1 is a bit unpleasant!) that you should be aware of.

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.