Despite an already strong run, Golden Ocean Group Limited (NASDAQ:GOGL) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 45%.

Following the firm bounce in price, given close to half the companies operating in the United States' Shipping industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Golden Ocean Group as a stock to potentially avoid with its 3.1x 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.

What Does Golden Ocean Group's Recent Performance Look Like?

Golden Ocean Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 20%. Still, the latest three year period has seen an excellent 45% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the six analysts covering the company are not great, suggesting revenue should decline by 1.0% per year over the next three years. Although, this is simply shaping up to be in line with the broader industry, which is also set to decline 0.7% per year.

In light of this, it's somewhat peculiar that Golden Ocean Group's P/S sits above the majority of other companies. We think shrinking revenues are unlikely to make the P/S premium sustainable, which could set up shareholders for future disappointment. Maintaining these prices will be difficult to achieve as the weak outlook is likely to weigh down the shares eventually.

What Does Golden Ocean Group's P/S Mean For Investors?

Golden Ocean Group shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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 Golden Ocean Group's analyst forecasts revealed that its equally shaky outlook against the industry isn't impacting its high P/S as much as we would have predicted. Right now we are uncomfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. We're also cautious about the company's ability to resist further pain to its business from the broader industry turmoil. Unless the company's prospects improve, it's hard to see the P/S and share price remaining at these current levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Golden Ocean Group (at least 2 which are significant), and understanding these should be part of your investment process.

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.