Southwest Gas Holdings, Inc.'s (NYSE:SWX) Share Price Is Matching Sentiment Around Its Revenues

When close to half the companies operating in the Gas Utilities industry in the United States have price-to-sales ratios (or "P/S") above 1.6x, you may consider Southwest Gas Holdings, Inc. (NYSE:SWX) as an attractive investment with its 1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Southwest Gas Holdings

How Has Southwest Gas Holdings Performed Recently?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Southwest Gas Holdings has been doing quite well of late. Perhaps the market is expecting future revenue performance to follow the rest of the industry downwards, which has kept the P/S suppressed. Those who are bullish on Southwest Gas Holdings will be hoping that this isn't the case and the company continues to beat out the industry.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period has seen an excellent 62% overall rise in revenue, in spite of its uninspiring short-term performance. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 0.6% per year as estimated by the three analysts watching the company. Meanwhile, the broader industry is forecast to expand by 24% per annum, which paints a poor picture.

With this information, we are not surprised that Southwest Gas Holdings is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Southwest Gas Holdings' P/S

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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Southwest Gas Holdings' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Southwest Gas Holdings' poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Southwest Gas Holdings (1 is a bit unpleasant!) that you should be aware of before investing here.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com