DHT Holdings, Inc.'s (NYSE:DHT) P/S Is On The Mark

DHT Holdings, Inc. -1.64%

DHT Holdings, Inc.

DHT

11.37

-1.64%

When close to half the companies in the Oil and Gas industry in the United States have price-to-sales ratios (or "P/S") below 1.7x, you may consider DHT Holdings, Inc. (NYSE:DHT) as a stock to potentially avoid with its 2.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for DHT Holdings

ps-multiple-vs-industry
NYSE:DHT Price to Sales Ratio vs Industry December 29th 2023

What Does DHT Holdings' P/S Mean For Shareholders?

DHT Holdings 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. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on DHT Holdings will help you uncover what's on the horizon.

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

In order to justify its P/S ratio, DHT Holdings would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 57%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 24% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue growth will show minor resilience over the next three years growing only by 1.2% each year. While this isn't a particularly impressive figure, it should be noted that the the industry is expected to decline by 1.1% each year.

With this information, we can understand why DHT Holdings is trading at such a high P/S compared to the industry. At this time, shareholders aren't keen to offload something that is potentially eyeing a much more prosperous future.

What We Can Learn From DHT Holdings' 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.

We can see that DHT Holdings maintains its high P/S on the strength of its forecast growth potentially beating a struggling industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. We still remain cautious about the company's ability to keep swimming against the current of the broader industry turmoil. Otherwise, it's hard to see the share price falling strongly in the near future under the current growth expectations.

Before you take the next step, you should know about the 1 warning sign for DHT Holdings that we have uncovered.

If you're unsure about the strength of DHT Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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