Crescent Energy Company's (NYSE:CRGY) price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Oil and Gas industry in the United States, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
View our latest analysis for Crescent Energy
What Does Crescent Energy's Recent Performance Look Like?
Crescent Energy has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to 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 Crescent Energy.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Crescent Energy'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 15%. Even so, admirably revenue has lifted 219% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.
Turning to the outlook, the next year should generate growth of 5.1% as estimated by the five analysts watching the company. With the industry predicted to deliver 4.4% growth , the company is positioned for a comparable revenue result.
With this in consideration, we find it intriguing that Crescent Energy's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.
The Bottom Line On Crescent Energy's 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.
Our examination of Crescent Energy's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.