Custom Truck One Source, Inc. (NYSE:CTOS) shares have had a horrible month, losing 28% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 38% share price drop.
Following the heavy fall in price, it would be understandable if you think Custom Truck One Source is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.4x, considering almost half the companies in the United States' Trade Distributors industry have P/S ratios above 1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
Check out our latest analysis for Custom Truck One Source
What Does Custom Truck One Source's P/S Mean For Shareholders?
While the industry has experienced revenue growth lately, Custom Truck One Source's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor 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.
Want the full picture on analyst estimates for the company? Then our free report on Custom Truck One Source will help you uncover what's on the horizon.What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Custom Truck One Source'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 3.4%. Still, the latest three year period has seen an excellent 54% overall rise in revenue, in spite of its unsatisfying short-term performance. 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.
Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 7.0% per year over the next three years. With the industry predicted to deliver 94% growth per year, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why Custom Truck One Source's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Bottom Line On Custom Truck One Source's P/S
Custom Truck One Source's recently weak share price has pulled its P/S back below other Trade Distributors companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of Custom Truck One Source's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.
Plus, you should also learn about this 1 warning sign we've spotted with Custom Truck One Source .
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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