There wouldn't be many who think Eneco Energy Limited's (SGX:R14) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Logistics industry in Singapore is similar at about 0.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Eneco Energy

How Has Eneco Energy Performed Recently?

It looks like revenue growth has deserted Eneco Energy recently, which is not something to boast about. It might be that many expect the uninspiring revenue performance to only match most other companies at best over the coming period, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't 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.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Still, the latest three year period was better as it's delivered a decent 10% overall rise in revenue. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

This is in contrast to the rest of the industry, which is expected to grow by 10% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Eneco Energy's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From Eneco Energy's P/S?

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.

Our examination of Eneco Energy revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Eneco Energy, and understanding them should be part of your investment process.

If you're unsure about the strength of Eneco Energy's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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