There's No Escaping Babcock & Wilcox Enterprises, Inc.'s (NYSE:BW) Muted Revenues Despite A 33% Share Price Rise

Babcock & Wilcox Enterprises, Inc. (NYSE:BW) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 24% in the last twelve months.

In spite of the firm bounce in price, Babcock & Wilcox Enterprises' price-to-sales (or "P/S") ratio of 0.1x might still make it look like a strong buy right now compared to the wider Electrical industry in the United States, where around half of the companies have P/S ratios above 2.2x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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See our latest analysis for Babcock & Wilcox Enterprises

How Babcock & Wilcox Enterprises Has Been Performing

Recent times have been advantageous for Babcock & Wilcox Enterprises as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

How Is Babcock & Wilcox Enterprises' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Babcock & Wilcox Enterprises' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. Still, lamentably revenue has fallen 3.3% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 2.6% as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 11% growth forecast for the broader industry.

With this in consideration, its clear as to why Babcock & Wilcox Enterprises' 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.

What We Can Learn From Babcock & Wilcox Enterprises' P/S?

Even after such a strong price move, Babcock & Wilcox Enterprises' P/S still trails the rest of the industry. 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.

As expected, our analysis of Babcock & Wilcox Enterprises' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Babcock & Wilcox Enterprises (of which 2 make us uncomfortable!) you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.