What You Can Learn From Natural Gas Services Group, Inc.'s (NYSE:NGS) P/S

When you see that almost half of the companies in the Energy Services industry in the United States have price-to-sales ratios (or "P/S") below 0.9x, Natural Gas Services Group, Inc. (NYSE:NGS) looks to be giving off some sell signals with its 2.2x 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 as high as it is.

See our latest analysis for Natural Gas Services Group

What Does Natural Gas Services Group's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Natural Gas Services Group has been doing relatively well. 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 Natural Gas Services Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Natural Gas Services Group's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 34% last year. The strong recent performance means it was also able to grow revenue by 52% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 12% growth forecast for the broader industry.

In light of this, it's understandable that Natural Gas Services Group's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Natural Gas Services Group's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Natural Gas Services Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Energy Services industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Natural Gas Services Group (1 can't be ignored!) that you need to be mindful of.

If you're unsure about the strength of Natural Gas Services Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.