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

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.

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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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.