There wouldn't be many who think Navigator Holdings Ltd.'s (NYSE:NVGS) price-to-sales (or "P/S") ratio of 2x is worth a mention when the median P/S for the Oil and Gas industry in the United States is similar at about 1.7x. 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.
Check out our latest analysis for Navigator Holdings
NYSE:NVGS Price to Sales Ratio vs Industry December 19th 2023
How Navigator Holdings Has Been Performing
Recent times have been pleasing for Navigator Holdings as its revenue has risen in spite of the industry's average revenue going into reverse. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. Those who are bullish on Navigator Holdings will be hoping that this isn't the case, 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 Navigator Holdings.
What Are Revenue Growth Metrics Telling Us About The P/S?
There's an inherent assumption that a company should be matching the industry for P/S ratios like Navigator Holdings' to be considered reasonable.
Retrospectively, the last year delivered a decent 10% gain to the company's revenues. The latest three year period has also seen an excellent 66% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Shifting to the future, estimates from the three analysts covering the company suggest revenue growth is heading into negative territory, declining 9.5% over the next year. Meanwhile, the broader industry is forecast to expand by 4.1%, which paints a poor picture.
With this in consideration, we think it doesn't make sense that Navigator Holdings' P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.
The Final Word
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 check of Navigator Holdings' analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.
You always need to take note of risks, for example - Navigator Holdings has 1 warning sign we think you should be aware of.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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