Some Forum Energy Technologies, Inc. (NYSE:FET) Shareholders Look For Exit As Shares Take 27% Pounding

Forum Energy Technologies, Inc. (NYSE:FET) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 21% in that time.

Although its price has dipped substantially, it's still not a stretch to say that Forum Energy Technologies' price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Energy Services industry in the United States, where the median P/S ratio is around 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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What Does Forum Energy Technologies' Recent Performance Look Like?

Recent revenue growth for Forum Energy Technologies has been in line with the industry. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

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Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Forum Energy Technologies' is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. This was backed up an excellent period prior to see revenue up by 51% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 0.7% per year over the next three years. With the industry predicted to deliver 3.8% growth each year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Forum Energy Technologies' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

Forum Energy Technologies' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

When you consider that Forum Energy Technologies' 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. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Forum Energy Technologies with six simple checks.

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.