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There wouldn't be many who think Ithaca Energy plc's (LON:ITH) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Oil and Gas industry in the United Kingdom is similar at about 1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
See our latest analysis for Ithaca Energy
What Does Ithaca Energy's P/S Mean For Shareholders?
There hasn't been much to differentiate Ithaca Energy's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. Those who are bullish on Ithaca Energy will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ithaca Energy.
Do Revenue Forecasts Match The P/S Ratio?
Ithaca Energy's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Taking a look back first, we see that the company grew revenue by an impressive 37% last year. The latest three year period has also seen an excellent 204% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Shifting to the future, estimates from the four analysts covering the company suggest revenue growth will show minor resilience over the next three years growing only by 3.3% per annum. While this isn't a particularly impressive figure, it should be noted that the the industry is expected to decline by 5.1% per year.
Despite the marginal growth, we find it odd that Ithaca Energy is trading at a fairly similar P/S to the industry. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.
What We Can Learn From Ithaca Energy's P/S?
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of Ithaca Energy's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.