Antero Resources Corporation's (NYSE:AR) 26% Share Price Surge Not Quite Adding Up

The Antero Resources Corporation (NYSE:AR) share price has done very well over the last month, posting an excellent gain of 26%. The last 30 days bring the annual gain to a very sharp 33%.

Following the firm bounce in price, you could be forgiven for thinking Antero Resources is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.4x, considering almost half the companies in the United States' Oil and Gas industry have P/S ratios below 1.8x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Antero Resources

What Does Antero Resources' P/S Mean For Shareholders?

Antero Resources has been struggling lately as its revenue has declined faster than most other companies. It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

Antero Resources' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. As a result, revenue from three years ago have also fallen 23% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 13% over the next year. Meanwhile, the rest of the industry is forecast to expand by 86%, which is noticeably more attractive.

With this information, we find it concerning that Antero Resources is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Antero Resources' P/S

Antero Resources' P/S is on the rise since its shares have risen strongly. 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.

We've concluded that Antero Resources currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Antero Resources you should know about.

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.