It's not a stretch to say that ProFrac Holding Corp.'s (NASDAQ:ACDC) price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" for companies in the Energy Services industry in the United States, where the median P/S ratio is around 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for ProFrac Holding

What Does ProFrac Holding's Recent Performance Look Like?

ProFrac Holding certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

How Is ProFrac Holding's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like ProFrac Holding's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 56% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 5.6% during the coming year according to the six analysts following the company. That's not great when the rest of the industry is expected to grow by 13%.

With this information, we find it concerning that ProFrac Holding is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. 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 Bottom Line On ProFrac Holding'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.

It appears that ProFrac Holding currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. 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.

It is also worth noting that we have found 3 warning signs for ProFrac Holding (1 is a bit unpleasant!) that you need to take into consideration.

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.