With a median price-to-sales (or "P/S") ratio of close to 1.7x in the Oil and Gas industry in the United States, you could be forgiven for feeling indifferent about Clean Energy Fuels Corp.'s (NASDAQ:CLNE) P/S ratio, which comes in at about the same. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Clean Energy Fuels' Recent Performance Look Like?

Clean Energy Fuels has been struggling lately as its revenue has declined faster than most other companies. One possibility is that the P/S is moderate because investors think the company's revenue trend will eventually fall in line with most others in the industry. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

How Is Clean Energy Fuels' Revenue Growth Trending?

Clean Energy Fuels' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.3%. Even so, admirably revenue has lifted 73% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 25% per annum over the next three years. That's shaping up to be materially lower than the 41% per year growth forecast for the broader industry.

In light of this, it's curious that Clean Energy Fuels' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Clean Energy Fuels' P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

When you consider that Clean Energy Fuels' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Clean Energy Fuels with six simple checks.

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.