Weatherford International plc (NASDAQ:WFRD) shareholders will be excited to see that the share price had a good month, posting a 26% gain and recovering from earlier weakness. To look back a little more, it is encouraging to see the stock is 67% of last year.
Although its price has soared higher, it’s still not a stretch to say that Weatherford International’s price-to-sales (or “P/S”) ratio of 1.1x now seems a little “middle of the road.” ” compared to The Energy Services industry in the United States, where the median P/S ratio is 1x. Although it may not raise any eyebrows, if the P/S ratio is unreasonable investors may miss a potential opportunity or ignore future disappointment.
Check out our latest analysis for Weatherford International
How Weatherford International Performs
Weatherford International may be doing better because it has been growing earnings less than most other companies lately. Many may have expected that the uninspiring earnings performance would strengthen positively, preventing the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the share price recovery.
Want the full picture of analyst estimates for the company? Then ours free Weatherford International’s report helps you discover what’s on the horizon.
How is Weatherford International’s Revenue Growing?
Weatherford International’s P/S ratio may be average for a company that is only expected to deliver moderate growth, and importantly, move in line with the industry.
In retrospect, last year delivered an incredible 19% gain on the company’s top line. However, revenue fell 17% overall from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company did not do a good job of increasing revenues during that period.
Looking ahead now, revenue is expected to rise 7.8% annually over the next three years according to six analysts who follow the company. Meanwhile, the rest of the industry is estimated to expand by 13% annually, which is very attractive.
Because of this, it is remarkable that Weatherford International’s P/S sits in line with most other companies. Apparently many investors in the company are less bearish than analysts have indicated and are not ready to let go of their stock now. Sustaining these prices will be difficult to achieve as this level of revenue growth will likely weigh on shares eventually.
The Last Word
Weatherford International appears to have returned the favor with a strong price jump that brought its P/S back in line with other companies in the industry Overall, our preference is to limit the use of price-to-sales ratio to establish what the market thinks. about the overall health of a company.
When you consider that Weatherford International’s earnings growth estimates are relatively muted compared to the broader industry, it’s easy to see why we consider trading at the current P/S ratio unexpected. Currently, we are not bullish on P/S as forecasted future earnings are unlikely to support more positive sentiment in the long run. Circumstances like this present a risk to current and future investors who may see share prices fall if lower earnings growth affects sentiment.
Before you settle your opinion, we know 2 warning signs for Weatherford International (1 is a bit concerned!) that you should know.
If solid for-profit companies tickle your fancy, then you’ll want to check them out. free list of interesting companies that trade at a low P/E (but have proven that they can grow profits).
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased approach 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 into account your goals, 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 of the stocks mentioned.
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