Nabors Industries Ltd.'s (NYSE:NBR) Shares Bounce 28% But Its Business Still Trails The Industry

Nabors Industries Ltd. (NYSE:NBR) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 32% over that time.

Although its price has surged higher, it would still be understandable if you think Nabors Industries is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.3x, considering almost half the companies in the United States' Energy Services industry have P/S ratios above 1x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Nabors Industries

What Does Nabors Industries' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Nabors Industries' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially 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 Nabors Industries will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Nabors Industries?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.4%. Even so, admirably revenue has lifted 60% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 6.1% over the next year. With the industry predicted to deliver 8.8% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Nabors Industries 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 Bottom Line On Nabors Industries' P/S

Despite Nabors Industries' share price climbing recently, its P/S still lags most other companies. 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 Nabors Industries' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Nabors Industries 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.