Further Upside For Flotek Industries, Inc. (NYSE:FTK) Shares Could Introduce Price Risks After 27% Bounce

Flotek Industries, Inc. (NYSE:FTK) shares have continued their recent momentum with a 27% gain in the last month alone. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, it would still be understandable if you think Flotek Industries is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.7x, considering almost half the companies in the United States' Chemicals industry have P/S ratios above 1.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Flotek Industries

What Does Flotek Industries' P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Flotek Industries has been doing quite well of late. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Flotek Industries will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 5.4% last year. Pleasingly, revenue has also lifted 297% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 16% during the coming year according to the sole analyst following the company. That's shaping up to be materially higher than the 6.6% growth forecast for the broader industry.

In light of this, it's peculiar that Flotek Industries' P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Flotek Industries' P/S?

The latest share price surge wasn't enough to lift Flotek Industries' P/S close to the industry median. 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.

To us, it seems Flotek Industries currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Before you settle on your opinion, we've discovered 4 warning signs for Flotek Industries (2 are a bit unpleasant!) that you should be aware of.

If you're unsure about the strength of Flotek Industries' 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.