Enviri Corporation (NYSE:NVRI) shareholders would be excited to see that the share price has had a great month, posting a 45% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 46% in the last year.
In spite of the firm bounce in price, it would still be understandable if you think Enviri is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.3x, considering almost half the companies in the United States' Commercial Services industry have P/S ratios above 1.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
View our latest analysis for Enviri
What Does Enviri's P/S Mean For Shareholders?
Recent times haven't been great for Enviri as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
In order to justify its P/S ratio, Enviri would need to produce sluggish growth that's trailing the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 6.7%. The latest three year period has also seen a 14% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 4.7% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 27% each year, which is noticeably more attractive.
In light of this, it's understandable that Enviri's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Enviri's P/S?
The latest share price surge wasn't enough to lift Enviri's P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
As expected, our analysis of Enviri's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Enviri with six simple checks.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.
