National Oilwell Varco Inc. (NYSE:NOV)

The analysis of the price-to-sales (P/S) ratio from 2006 to 2016 reveals a period of significant valuation volatility, characterized by two distinct peaks and two sharp contractions. The relationship between share price and sales per share indicates that market valuation fluctuated independently of revenue growth trends for several intervals.

Initial Volatility and 2009 Contraction

Between 2006 and 2008, the P/S ratio remained relatively stable, fluctuating between 1.70 and 2.27. However, a significant divergence occurred in 2009; while sales per share increased to 32.18 US$, the share price dropped sharply to 23.97 US$, resulting in a P/S ratio contraction to 0.74. This suggests a period where market sentiment decoupled from operational revenue growth.

Recovery and Valuation Peak

A strong recovery phase is observed between 2010 and 2012. The P/S ratio rose from 1.43 in 2010 to a period peak of 2.75 in 2011. This upward trend was driven by a rapid increase in share price, which grew from 43.47 US$ to 86.23 US$ over three years, significantly outpacing the growth in sales per share during the same window.

Long-term Valuation Compression

From 2013 to 2016, a consistent downward trend in the P/S ratio is evident, falling from 1.45 to 0.75. Notably, the lowest valuation in 2016 occurred despite sales per share having reached a historical peak of 53.37 US$ in 2014. The steady decline in the P/S ratio during this period reflects a systemic compression in the multiple investors were willing to pay for each dollar of sales, culminating in a share price of 29.30 US$ by February 2016.