It's A Story Of Risk Vs Reward With Fuel Tech, Inc. (NASDAQ:FTEK)

There wouldn't be many who think Fuel Tech, Inc.'s (NASDAQ:FTEK) price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S for the Commercial Services industry in the United States is very similar. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Fuel Tech

How Has Fuel Tech Performed Recently?

Recent times haven't been great for Fuel Tech as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre 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.

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

How Is Fuel Tech's Revenue Growth Trending?

In order to justify its P/S ratio, Fuel Tech would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 7.2% gain to the company's revenues. Pleasingly, revenue has also lifted 42% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 17% per year as estimated by the lone analyst watching the company. With the industry only predicted to deliver 10.0% per annum, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Fuel Tech 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.

The Bottom Line On Fuel Tech's P/S

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.

We've established that Fuel Tech currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Fuel Tech that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.