OceanPal Inc. (NASDAQ:OP) Might Not Be As Mispriced As It Looks After Plunging 28%

To the annoyance of some shareholders, OceanPal Inc. (NASDAQ:OP) shares are down a considerable 28% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 73% loss during that time.

Since its price has dipped substantially, it would be understandable if you think OceanPal is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.2x, considering almost half the companies in the United States' Shipping industry have P/S ratios above 0.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Our free stock report includes 2 warning signs investors should be aware of before investing in OceanPal. Read for free now.

See our latest analysis for OceanPal

What Does OceanPal's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, OceanPal has been doing very well. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on OceanPal's earnings, revenue and cash flow.

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 36%. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 8.0% shows it's a great look while it lasts.

With this information, we find it very odd that OceanPal is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

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

The southerly movements of OceanPal'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.

Upon analysing the past data, we see it is unexpected that OceanPal is currently trading at a lower P/S than the rest of the industry given that its revenue growth in the past three-year years is exceeding expectations in a challenging industry. There could be some major unobserved threats to revenue preventing the P/S ratio from matching this positive performance. Amidst challenging industry conditions, perhaps a key concern is whether the company can sustain its superior revenue growth trajectory. It appears many are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for OceanPal you should be aware of.

If these risks are making you reconsider your opinion on OceanPal, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.