When close to half the companies in the Oil and Gas industry in the United States have price-to-sales ratios (or "P/S") below 1.7x, you may consider Equitrans Midstream Corporation (NYSE:ETRN) as a stock to potentially avoid with its 3.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Equitrans Midstream

How Equitrans Midstream Has Been Performing

With its revenue growth in positive territory compared to the declining revenue of most other companies, Equitrans Midstream has been doing quite well of late. The P/S ratio is probably high because investors think the company will continue to navigate the broader industry headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Equitrans Midstream?

In order to justify its P/S ratio, Equitrans Midstream would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 12% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue growth will be highly resilient over the next three years growing by 7.7% per annum. That would be an excellent outcome when the industry is expected to decline by 1.1% each year.

In light of this, it's understandable that Equitrans Midstream's P/S sits above the majority of other companies. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader industry going backwards.

The Bottom Line On Equitrans Midstream's P/S

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We can see that Equitrans Midstream maintains its high P/S on the strength of its forecast growth potentially beating a struggling industry, as expected. Outperforming the industry in this manner looks to have provided investors with a bit of confidence that the future will be bright, bolstering the P/S. Our only concern is whether its revenue trajectory can keep outperforming under these tough industry conditions. Otherwise, it's hard to see the share price falling strongly in the near future under the current growth expectations.

Plus, you should also learn about these 2 warning signs we've spotted with Equitrans Midstream (including 1 which shouldn't be ignored).

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.