Investors Appear Satisfied With Tidewater Inc.'s (NYSE:TDW) Prospects As Shares Rocket 27%

Despite an already strong run, Tidewater Inc. (NYSE:TDW) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 182% following the latest surge, making investors sit up and take notice.

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 1x, you may consider Tidewater as a stock to avoid entirely with its 4.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Tidewater

What Does Tidewater's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Tidewater has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

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

Retrospectively, the last year delivered an exceptional 87% gain to the company's top line. The latest three year period has also seen an excellent 53% overall rise in revenue, aided by its short-term performance. 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 46% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 13% growth forecast for the broader industry.

In light of this, it's understandable that Tidewater's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Tidewater's P/S Mean For Investors?

Shares in Tidewater have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Tidewater 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Tidewater that you should be aware of.

If you're unsure about the strength of Tidewater'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.