Investors Still Aren't Entirely Convinced By Nine Energy Service, Inc.'s (NYSE:NINE) Revenues Despite 31% Price Jump

Nine Energy Service, Inc. (NYSE:NINE) shareholders are no doubt pleased to see that the share price has bounced 31% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 61% share price decline over the last year.

In spite of the firm bounce in price, it would still be understandable if you think Nine Energy Service is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.1x, considering almost half the companies in the United States' Energy Services industry have P/S ratios above 1.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Nine Energy Service

What Does Nine Energy Service's Recent Performance Look Like?

For instance, Nine Energy Service's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Nine Energy Service's earnings, revenue and cash flow.

How Is Nine Energy Service's Revenue Growth Trending?

Nine Energy Service's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.1%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 155% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 10% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that Nine Energy Service is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite Nine Energy Service's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We're very surprised to see Nine Energy Service currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for Nine Energy Service you should be aware of, and 1 of them is potentially serious.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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