Revenues Working Against Vital Energy, Inc.'s (NYSE:VTLE) Share Price Following 27% Dive

To the annoyance of some shareholders, Vital Energy, Inc. (NYSE:VTLE) shares are down a considerable 27% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 69% share price decline.

Following the heavy fall in price, Vital Energy may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Oil and Gas industry in the United States have P/S ratios greater than 1.6x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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Check out our latest analysis for Vital Energy

What Does Vital Energy's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Vital Energy has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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.

Keen to find out how analysts think Vital Energy's future stacks up against the industry? In that case, our free report is a great place to start .

How Is Vital Energy's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Vital Energy's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 40% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 1.4% per year as estimated by the nine analysts watching the company. With the industry predicted to deliver 5.6% growth per year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Vital Energy's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Vital Energy's P/S?

The southerly movements of Vital Energy's shares means its P/S is now sitting at a pretty low level. 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.

As we suspected, our examination of Vital Energy's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Vital Energy that you should be aware of.

If you're unsure about the strength of Vital Energy'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.