Why We're Not Concerned Yet About LanzaTech Global, Inc.'s (NASDAQ:LNZA) 37% Share Price Plunge

Unfortunately for some shareholders, the LanzaTech Global, Inc. (NASDAQ:LNZA) share price has dived 37% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 41% share price drop.

In spite of the heavy fall in price, when almost half of the companies in the United States' Commercial Services industry have price-to-sales ratios (or "P/S") below 1.3x, you may still consider LanzaTech Global as a stock not worth researching with its 6.5x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for LanzaTech Global

What Does LanzaTech Global's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, LanzaTech Global has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on LanzaTech Global.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like LanzaTech Global's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 68% gain to the company's top line. The latest three year period has also seen an excellent 241% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 45% each year as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 20% per annum, which is noticeably less attractive.

In light of this, it's understandable that LanzaTech Global's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does LanzaTech Global's P/S Mean For Investors?

Even after such a strong price drop, LanzaTech Global's P/S still exceeds the industry median significantly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of LanzaTech Global's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for LanzaTech Global that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.