Even With A 27% Surge, Cautious Investors Are Not Rewarding Source Energy Services Ltd.'s (TSE:SHLE) Performance Completely
Source Energy Services Ltd. (TSE:SHLE) shares have continued their recent momentum with a 27% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 51% in the last year.
Although its price has surged higher, given about half the companies operating in Canada's Energy Services industry have price-to-sales ratios (or "P/S") above 0.6x, you may still consider Source Energy Services as an attractive investment with its 0.1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Source Energy Services
What Does Source Energy Services' Recent Performance Look Like?
Source Energy Services could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Keen to find out how analysts think Source Energy Services' future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The Low P/S Ratio?
Source Energy Services' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 30%. The latest three year period has also seen a 25% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Turning to the outlook, the next year should generate growth of 25% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 3.9% growth forecast for the broader industry.
With this in consideration, we find it intriguing that Source Energy Services' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
What Does Source Energy Services' P/S Mean For Investors?
Despite Source Energy Services' share price climbing recently, its P/S still lags most other companies. 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.
A look at Source Energy Services' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
Having said that, be aware Source Energy Services is showing 1 warning sign in our investment analysis, you should know about.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.
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