Tidewater Inc. (NYSE:TDW) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The annual gain comes to 104% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, when almost half of the companies in the United States' Energy Services industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider Tidewater as a stock not worth researching with its 4.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Tidewater

How Has Tidewater Performed Recently?

Tidewater certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Tidewater?

Tidewater's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 58% last year. The latest three year period has also seen an excellent 111% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 46% as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 13% growth forecast for the broader industry.

In light of this, it's understandable that Tidewater's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has lead to Tidewater's P/S soaring as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Tidewater maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Energy Services industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Tidewater (1 is a bit unpleasant!) that you need to take into consideration.

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.