NRG Energy, Inc. (NYSE: NRG) is doing everything it can to boost shares

NRG Energy, Inc (NYSE:NRG)’s price-to-sales (or “P/S”) ratio of 0.7x seems like a pretty attractive investment opportunity, considering that nearly half of the companies in the electric utility industry in the United States have a P /S have. S ratios greater than 2.4x. However, the P/S could be low for a reason and further research is needed to determine if it is justified.

Check out our latest analysis for NRG Energy

What is NRG Energy’s recent performance?

Recent times haven’t been great for NRG Energy, as the company’s revenue has declined faster than most other companies. It seems many are expecting the dismal revenue performance that has depressed the price-to-earnings ratio to continue. If you still like the company, you’ll want to see the sales trend change before making any decisions. If not, existing shareholders will likely have difficulty getting excited about the future direction of the share price.

Want to find out how analysts think NRG Energy’s future compares to the industry? In this case ours free The report is a good start.

What do revenue growth metrics tell us about the low P/E ratio?

NRG Energy’s P/E ratio would be typical of a company that is expected to have limited growth and, more importantly, underperform the industry.

Looking back first, the company’s revenue growth last year was nothing to cheer about, as it posted a disappointing decline of 5.9%. Regardless, thanks to the earlier growth phase, we managed to increase sales overall by an impressive 28% compared to the previous year. Accordingly, shareholders would be broadly happy with the medium-term revenue growth rates, although they would have preferred to continue the run.

Looking ahead, estimates from the six analysts covering the company are for revenue to grow 6.2% per year over the next three years. Meanwhile, the rest of the industry is forecast to grow at 5.1% per year, which isn’t significantly different.

With that in mind, it’s strange that NRG Energy’s P/S is below most other companies. Most investors may not be convinced that the company can meet future growth expectations.

What can we learn from NRG Energy’s P/S?

While the price-to-sales ratio shouldn’t be the deciding factor in whether or not you buy a stock, it is still a very meaningful barometer of sales expectations.

We’ve seen that NRG Energy is currently trading at a lower P/E than expected as its forecast growth is in line with that of the broader industry. When we see mid-range revenue growth like this, we assume it must be the potential risks that are putting pressure on the price-to-earnings ratio. Investors may be concerned that the company could underperform forecasts in the near term.

And what about other risks? Every company has them, and we discovered them 2 warning signs for NRG Energy (1 of which is significant!) that you should know about.

If you like strong companies that make profits, then you should check this out free List of interesting companies that trade on a low P/E ratio (but have proven they can grow profits).

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.