Eos Energy Enterprises, Inc. (NASDAQ:EOSE) shares have had a horrible month, losing 29% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 68% share price decline.

Even after such a large drop in price, you could still be forgiven for thinking Eos Energy Enterprises is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 9.2x, considering almost half the companies in the United States' Electrical industry have P/S ratios below 1.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

What Does Eos Energy Enterprises' P/S Mean For Shareholders?

Eos Energy Enterprises hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Enough Revenue Growth Forecasted For Eos Energy Enterprises?

In order to justify its P/S ratio, Eos Energy Enterprises would need to produce outstanding growth that's well in excess of 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 8.6%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Looking ahead now, revenue is anticipated to climb by 288% per annum during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 34% each year growth forecast for the broader industry.

With this information, we can see why Eos Energy Enterprises is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Eos Energy Enterprises' P/S?

Eos Energy Enterprises' shares may have suffered, but its P/S remains high. 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.

Our look into Eos Energy Enterprises shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 4 warning signs for Eos Energy Enterprises (3 shouldn't be ignored!) that we have uncovered.

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.