First Ship Lease Trust (SGX:D8DU) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month.    Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 38% share price drop.  

In spite of the heavy fall in price, when almost half of the companies in Singapore's Shipping industry have price-to-sales ratios (or "P/S") below 1.9x, you may still consider First Ship Lease Trust as a stock not worth researching with its 4.3x P/S ratio.   However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.  

See our latest analysis for First Ship Lease Trust

SGX:D8DU Price to Sales Ratio vs Industry October 22nd 2023

What Does First Ship Lease Trust's P/S Mean For Shareholders?

For example, consider that First Ship Lease Trust's financial performance has been poor lately as its revenue has been in decline.   Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high.  If not, then existing shareholders may be quite nervous about the viability of the share price.    

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on First Ship Lease Trust will help you shine a light on its historical performance.  

Is There Enough Revenue Growth Forecasted For First Ship Lease Trust?  

The only time you'd be truly comfortable seeing a P/S as steep as First Ship Lease Trust's is when the company's growth is on track to outshine the industry decidedly.  

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 42%.   This means it has also seen a slide in revenue over the longer-term as revenue is down 79% in total over the last three years.  Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.  

Comparing that to the industry, which is predicted to shrink 17% in the next 12 months, the company's downward momentum is still inferior based on recent medium-term annualised revenue results.

In light of this, it's odd that First Ship Lease Trust's P/S sits above the majority of other companies.  With revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet.  There's potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.  

The Bottom Line On First Ship Lease Trust's P/S

First Ship Lease Trust's shares may have suffered, but its P/S remains high.      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 examination of First Ship Lease Trust revealed its sharp three-year contraction in revenue isn't impacting its high P/S anywhere near as much as we would have predicted, given the industry is set to shrink less severely.  Right now we aren't comfortable with the high P/S as this revenue performance is unlikely to support such positive sentiment for long.  In addition, we would be concerned whether the company can even maintain its medium-term level of performance under these tough industry conditions.  This would place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for First Ship Lease Trust that you need to be mindful of.  

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.