EchoStar Corporation's (NASDAQ:SATS) Revenues Are Not Doing Enough For Some Investors

You may think that with a price-to-sales (or "P/S") ratio of 0.2x EchoStar Corporation (NASDAQ:SATS) is a stock worth checking out, seeing as almost half of all the Media companies in the United States have P/S ratios greater than 1x and even P/S higher than 3x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for EchoStar

What Does EchoStar's Recent Performance Look Like?

EchoStar could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is EchoStar's Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.7%. In spite of this, the company still managed to deliver immense revenue growth over the last three years. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue growth is heading into negative territory, declining 0.7% per annum over the next three years. With the industry predicted to deliver 4.4% growth per year, that's a disappointing outcome.

In light of this, it's understandable that EchoStar's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From EchoStar's P/S?

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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that EchoStar's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, EchoStar's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for EchoStar you should be aware of, and 2 of them shouldn't be ignored.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.