There's No Escaping Quest Resource Holding Corporation's (NASDAQ:QRHC) Muted Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.5x Quest Resource Holding Corporation (NASDAQ:QRHC) is a stock worth checking out, seeing as almost half of all the Commercial Services companies in the United States have P/S ratios greater than 1.2x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Quest Resource Holding

What Does Quest Resource Holding's Recent Performance Look Like?

Recent times haven't been great for Quest Resource Holding as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Quest Resource Holding would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 4.9% gain to the company's revenues. The latest three year period has also seen an excellent 199% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 8.6% per year during the coming three years according to the three analysts following the company. With the industry predicted to deliver 20% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Quest Resource Holding is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Quest Resource Holding's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Quest Resource Holding with six simple checks on some of these key factors.

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.