Despite an already strong run, Babcock & Wilcox Enterprises, Inc. (NYSE:BW) shares have been powering on, with a gain of 33% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 2.0% isn't as impressive.

In spite of the firm bounce in price, Babcock & Wilcox Enterprises may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Electrical industry in the United States have P/S ratios greater than 1.7x and even P/S higher than 5x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Babcock & Wilcox Enterprises' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Babcock & Wilcox Enterprises' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

How Is Babcock & Wilcox Enterprises' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Babcock & Wilcox Enterprises' is when the company's growth is on track to lag the industry.

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 7.5%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 39% in total over the last three years. 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.

Looking ahead now, revenue is anticipated to climb by 5.3% during the coming year according to the four analysts following the company. With the industry predicted to deliver 14% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Babcock & Wilcox Enterprises' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Babcock & Wilcox Enterprises' P/S

Babcock & Wilcox Enterprises' stock price has surged recently, but its but its P/S still remains modest. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Babcock & Wilcox Enterprises maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Babcock & Wilcox Enterprises (of which 1 is a bit unpleasant!) you should know about.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.