Cooper Energy Limited's (ASX:COE) Shares Lagging The Industry But So Is The Business
Cooper Energy Limited's (ASX:COE) price-to-sales (or "P/S") ratio of 1.5x might make it look like a strong buy right now compared to the Oil and Gas industry in Australia, where around half of the companies have P/S ratios above 7.2x and even P/S above 212x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Cooper Energy
What Does Cooper Energy's P/S Mean For Shareholders?
Cooper Energy could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Keen to find out how analysts think Cooper Energy's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Any Revenue Growth Forecasted For Cooper Energy?
Cooper Energy's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.1%. Even so, admirably revenue has lifted 152% 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.
Looking ahead now, revenue is anticipated to climb by 14% each year during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 237% per annum, which is noticeably more attractive.
With this in consideration, its clear as to why Cooper Energy's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Key Takeaway
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
We've established that Cooper Energy maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 1 warning sign for Cooper Energy that you need to be mindful of.
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.
