Why Investors Shouldn't Be Surprised By Spruce Power Holding Corporation's (NYSE:SPRU) Low P/S

With a price-to-sales (or "P/S") ratio of 0.5x Spruce Power Holding Corporation (NYSE:SPRU) may be sending bullish signals at the moment, given that almost half of all the Renewable Energy companies in the United States have P/S ratios greater than 2.1x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for Spruce Power Holding

How Has Spruce Power Holding Performed Recently?

With revenue growth that's inferior to most other companies of late, Spruce Power Holding has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Spruce Power Holding?

Spruce Power Holding's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 2.8% gain to the company's revenues. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 0.09% over the next year. Meanwhile, the rest of the industry is forecast to expand by 17%, which is noticeably more attractive.

With this information, we can see why Spruce Power Holding is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Spruce Power Holding's P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Spruce Power Holding maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Spruce Power Holding (1 shouldn't be ignored!) that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.