NCS Multistage Holdings, Inc. (NASDAQ:NCSM) Soars 26% But It's A Story Of Risk Vs Reward

The NCS Multistage Holdings, Inc. (NASDAQ:NCSM) share price has done very well over the last month, posting an excellent gain of 26%. Looking back a bit further, it's encouraging to see the stock is up 74% in the last year.

In spite of the firm bounce in price, when close to half the companies operating in the United States' Energy Services industry have price-to-sales ratios (or "P/S") above 1x, you may still consider NCS Multistage Holdings as an enticing stock to check out with its 0.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for NCS Multistage Holdings

How Has NCS Multistage Holdings Performed Recently?

NCS Multistage Holdings could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. 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.

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

Do Revenue Forecasts Match The Low P/S Ratio?

NCS Multistage Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 3.7% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 39% in total over the last three years. 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 6.5% per year as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 4.2% each year, which is noticeably less attractive.

With this information, we find it odd that NCS Multistage Holdings is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From NCS Multistage Holdings' P/S?

Despite NCS Multistage Holdings' share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

To us, it seems NCS Multistage Holdings currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 3 warning signs for NCS Multistage Holdings (1 shouldn't be ignored!) that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.