A Piece Of The Puzzle Missing From Geospace Technologies Corporation's (NASDAQ:GEOS) 52% Share Price Climb

Geospace Technologies Corporation (NASDAQ:GEOS) shareholders would be excited to see that the share price has had a great month, posting a 52% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 2.6% isn't as impressive.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Geospace Technologies' P/S ratio of 1x, 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. 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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See our latest analysis for Geospace Technologies

How Has Geospace Technologies Performed Recently?

For example, consider that Geospace Technologies' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Is There Some Revenue Growth Forecasted For Geospace Technologies?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Geospace Technologies' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 15%. Even so, admirably revenue has lifted 37% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 1.5% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Geospace Technologies' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

Its shares have lifted substantially and now Geospace Technologies' P/S is back within range of the industry median. 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.

We've established that Geospace Technologies currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Geospace Technologies (1 is a bit concerning!) that you should be aware of before investing here.

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.