With a price-to-sales (or "P/S") ratio of 0.1x PBF Energy Inc. (NYSE:PBF) may be sending bullish signals at the moment, given that almost half of all the Oil and Gas companies in the United States have P/S ratios greater than 1.7x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for PBF Energy

What Does PBF Energy's P/S Mean For Shareholders?

With revenue that's retreating more than the industry's average of late, PBF Energy has been very sluggish. It seems that many are expecting the dismal revenue performance to persist, which has repressed the P/S. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

How Is PBF Energy's Revenue Growth Trending?

In order to justify its P/S ratio, PBF Energy would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 9.5% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 125% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 12% as estimated by the eleven analysts watching the company. That's not great when the rest of the industry is expected to grow by 3.8%.

With this information, we are not surprised that PBF Energy is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that PBF Energy's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, PBF Energy's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Before you take the next step, you should know about the 3 warning signs for PBF Energy (2 are potentially serious!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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