Investors Appear Satisfied With Kodiak Gas Services, Inc.'s (NYSE:KGS) Prospects As Shares Rocket 27%

Kodiak Gas Services, Inc. (NYSE:KGS) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 114% in the last year.

Since its price has surged higher, given around half the companies in the United States' Energy Services industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider Kodiak Gas Services as a stock to avoid entirely with its 3.2x 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 so lofty.

See our latest analysis for Kodiak Gas Services

What Does Kodiak Gas Services' Recent Performance Look Like?

Kodiak Gas Services certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Kodiak Gas Services' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Kodiak Gas Services would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. The latest three year period has also seen an excellent 77% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 21% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 6.3%, which is noticeably less attractive.

With this information, we can see why Kodiak Gas Services is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Kodiak Gas Services' P/S?

Kodiak Gas Services' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Kodiak Gas Services' 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.

You need to take note of risks, for example - Kodiak Gas Services has 5 warning signs (and 2 which are significant) we think you should know about.

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.