ProFrac Holding Corp. (NASDAQ:ACDC) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 7.0% over the last year.
Even after such a large jump in price, you could still be forgiven for feeling indifferent about ProFrac Holding's P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Energy Services industry in the United States is also close to 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
See our latest analysis for ProFrac Holding
How Has ProFrac Holding Performed Recently?
ProFrac Holding could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
Want the full picture on analyst estimates for the company? Then our free report on ProFrac Holding will help you uncover what's on the horizon.Is There Some Revenue Growth Forecasted For ProFrac Holding?
There's an inherent assumption that a company should be matching the industry for P/S ratios like ProFrac Holding's to be considered reasonable.
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 17%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 185% 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.
Turning to the outlook, the next three years should generate growth of 1.7% each year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 4.7% per year, which is noticeably more attractive.
With this in mind, we find it intriguing that ProFrac Holding's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
What We Can Learn From ProFrac Holding's P/S?
Its shares have lifted substantially and now ProFrac Holding's P/S is back within range of the industry median. 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.
When you consider that ProFrac Holding's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.
And what about other risks? Every company has them, and we've spotted 1 warning sign for ProFrac Holding you should know about.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.