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To the annoyance of some shareholders FuelCell Energy, Inc. (NASDAQ:FCEL) shares have fallen a whopping 29% over the past month, continuing the company’s terrible slide. For any long-term shareholders, last month capped off a year to forget, with the share price falling 70%.

Although the price has dropped significantly, you might still think that FuelCell Energy, with a price-to-sales ratio (or “P/S”) of 3.6x, is a stock to avoid, considering that nearly half of the companies in the U.S. electric industry have a P/S ratio of under 1.5x. However, it’s not wise to simply take the P/S at face value, as there might be an explanation for why it’s so high.

Check out our latest analysis for FuelCell Energy

How has FuelCell Energy developed recently?

FuelCell Energy has not performed well recently as its revenue decline compares poorly to other companies whose revenues have grown a little on average. Perhaps the market is expecting a reversal of the weak sales, justifying the current high P/S. If not, existing shareholders may be extremely nervous about the profitability of the share price.

If you want to know what analysts are predicting for the future, you should check out our free Report on fuel cell energy.

Is sufficient sales growth forecast for fuel cell energy?

There is a fundamental assumption that a company must significantly outperform the industry for P/S ratios like FuelCell Energy’s to be considered reasonable.

Looking back, last year saw a frustrating 45% drop in sales. However, the company has posted an excellent 35% overall sales increase over the last three-year period, despite the unsatisfactory short-term performance. Even though it has been bumpy, it is still fair to say that the sales growth of late has been more than sufficient for the company.

According to nine analysts who cover the company, revenue is expected to grow 57% annually over the next three years, well above the 45% annual growth rate forecast for the industry as a whole.

With that in mind, it’s understandable that FuelCell Energy has a better price-to-earnings ratio than most other companies. It seems shareholders aren’t interested in selling something that potentially has a better future ahead of it.

The most important things to take away

FuelCell Energy shares have suffered, but its price-to-sales ratio remains high. It is argued that the price-to-sales ratio is a poorer measure of value in certain industries, but can be a strong indicator of business sentiment.

As we suspected, our study of FuelCell Energy’s analyst forecasts found that its above-average revenue outlook contributes to its high P/S ratio. Currently, shareholders are happy with the P/S as they are fairly confident that future revenues are not at risk. Under these circumstances, it is difficult to imagine the share price falling much in the near future.

You should also know the following: 3 warning signs we discovered at FuelCell Energy.

If those Risks make you rethink your opinion of FuelCell Energyexplore our interactive list of high-quality stocks to get a sense of what else is out there.

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This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not 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 analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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