Shareholders Should Be Pleased With EQT Corporation's (NYSE:EQT) Price

When you see that almost half of the companies in the Oil and Gas industry in the United States have price-to-sales ratios (or "P/S") below 2x, EQT Corporation (NYSE:EQT) looks to be giving off some sell signals with its 3.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for EQT

What Does EQT's P/S Mean For Shareholders?

EQT has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market is predicting a change in fortunes for the company and is expecting them to blow past the rest of the industry, elevating the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is EQT's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 61% decrease to the company's top line. Even so, admirably revenue has lifted 46% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 26% per annum as estimated by the ten analysts watching the company. With the industry only predicted to deliver 3.1% per annum, the company is positioned for a stronger revenue result.

In light of this, it's understandable that EQT'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.

The Bottom Line On EQT's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that EQT maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Oil and Gas industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for EQT that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com