Vital Energy, Inc. (NYSE:VTLE) Might Not Be As Mispriced As It Looks After Plunging 27%

Unfortunately for some shareholders, the Vital Energy, Inc. (NYSE:VTLE) share price has dived 27% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 54% loss during that time.

After such a large drop in price, Vital Energy may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.5x, since almost half of all companies in the Oil and Gas industry in the United States have P/S ratios greater than 1.8x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Vital Energy

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

With its revenue growth in positive territory compared to the declining revenue of most other companies, Vital Energy has been doing quite well of late. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. Those who are bullish on Vital Energy will be hoping that this isn't the case and the company continues to beat out the industry.

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.

Do Revenue Forecasts Match The Low P/S Ratio?

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 23% gain to the company's top line. The latest three year period has also seen an excellent 103% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 9.0% as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 7.2%, which is not materially different.

In light of this, it's peculiar that Vital Energy's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

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

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

Our examination of Vital Energy's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Vital Energy (1 is potentially serious!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.