Unpleasant Surprises Could Be In Store For Scorpio Tankers Inc.'s (NYSE:STNG) Shares

There wouldn't be many who think Scorpio Tankers Inc.'s (NYSE:STNG) price-to-sales (or "P/S") ratio of 1.3x is worth a mention when the median P/S for the Oil and Gas industry in the United States is very similar. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Scorpio Tankers

What Does Scorpio Tankers' Recent Performance Look Like?

Recent times have been advantageous for Scorpio Tankers as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

Scorpio Tankers' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 205% gain to the company's top line. Pleasingly, revenue has also lifted 133% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the eleven analysts covering the company are not good at all, suggesting revenue should decline by 23% over the next year. The industry is also set to see revenue decline 10% but the stock is shaping up to perform materially worse.

With this in mind, we find it intriguing that Scorpio Tankers' P/S is similar to its industry peers. When revenue shrink rapidly the P/S often shrinks too, which could set up shareholders for future disappointment. There's potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth.

The Final Word

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Scorpio Tankers' analyst forecasts have revealed that its even shakier outlook against the industry isn't impacting its P/S as much as we would have predicted. Even though the company's P/S is on par with the rest of the industry, the fact that it's revenue outlook is poorer than an already struggling industry suggests that the P/S isn't justified. We also have our reservations about the company's ability to sustain this level of performance amidst the challenging industry conditions. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Scorpio Tankers is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

If these risks are making you reconsider your opinion on Scorpio Tankers, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.