Yahoo Finance Harbour Energy plc's (LON:HBR) Revenues Are Not Doing Enough For Some Investors
With a price-to-sales (or "P/S") ratio of 0.5x Harbour Energy plc (LON:HBR) may be sending bullish signals at the moment, given that almost half of all the Oil and Gas companies in the United Kingdom have P/S ratios greater than 1.1x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
View our latest analysis for Harbour Energy
What Does Harbour Energy's P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, Harbour Energy has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Harbour Energy.
Is There Any Revenue Growth Forecasted For Harbour Energy?
The only time you'd be truly comfortable seeing a P/S as low as Harbour Energy's is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 50%. Pleasingly, revenue has also lifted 130% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to plummet, contracting by 6.5% per annum during the coming three years according to the ten analysts following the company. Meanwhile, the broader industry is forecast to moderate by 2.7% per year, which indicates the company should perform poorly indeed.
With this in consideration, it's clear to us why Harbour Energy's P/S isn't quite up to scratch with its industry peers. However, when revenue shrink rapidly the P/S often shrinks too, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
The Bottom Line On Harbour Energy's P/S
We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Harbour Energy's P/S is about what we expect, seeing as the P/S and revenue growth forecasts are lower than that of an already struggling industry. With such a gloomy outlook, investors feel the potential for an improvement in revenue isn't great enough to justify paying a premium resulting in a higher P/S ratio. However, we're still cautious about the company's ability to resist even greater pain to its business from the broader industry turmoil. Given the current circumstances, it's difficult to envision any significant increase in the share price in the near term.
There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Harbour Energy that you should be aware of.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.
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