Eneco Energy Limited (SGX:R14) shareholders that were waiting for something to happen have been dealt a blow with a 30% 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 42% share price drop.

Although its price has dipped substantially, it's still not a stretch to say that Eneco Energy's price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the Logistics industry in Singapore, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Eneco Energy

How Eneco Energy Has Been Performing

For instance, Eneco Energy's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Eneco Energy's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Eneco Energy?

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

Retrospectively, the last year delivered a frustrating 5.7% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 19% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Eneco Energy is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Eneco Energy's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Eneco Energy looks to be in line with the rest of the Logistics industry. 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.

The fact that Eneco Energy currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

You should always think about risks. Case in point, we've spotted 2 warning signs for Eneco Energy you should be aware of, and 1 of them is a bit unpleasant.

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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