Little Excitement Around Harbour Energy plc's (LON:HBR) Revenues

Harbour Energy plc's (LON:HBR) price-to-sales (or "P/S") ratio of 0.5x might make it look like a buy right now compared to the Oil and Gas industry in the United Kingdom, where around half of the companies have P/S ratios above 1.9x and even P/S above 9x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Harbour Energy

How Has Harbour Energy Performed Recently?

Harbour Energy certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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What Are Revenue Growth Metrics Telling Us About The Low P/S?

Harbour Energy's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 162%. The strong recent performance means it was also able to grow revenue by 101% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 7.0% per year as estimated by the nine analysts watching the company. That's not great when the rest of the industry is expected to grow by 8.3% per year.

In light of this, it's understandable that Harbour Energy's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. 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

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Harbour Energy's P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Harbour Energy that you should be aware of.

If these risks are making you reconsider your opinion on Harbour Energy, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.