GFL Environmental Inc. (TSE:GFL) Investors Are Less Pessimistic Than Expected
GFL Environmental Inc.'s (TSE:GFL) price-to-sales (or "P/S") ratio of 2.5x may not look like an appealing investment opportunity when you consider close to half the companies in the Commercial Services industry in Canada have P/S ratios below 1.2x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for GFL Environmental
What Does GFL Environmental's Recent Performance Look Like?
Recent revenue growth for GFL Environmental has been in line with the industry. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on analyst estimates for the company? Then our free report on GFL Environmental will help you uncover what's on the horizon.
How Is GFL Environmental's Revenue Growth Trending?
In order to justify its P/S ratio, GFL Environmental would need to produce impressive growth in excess of the industry.
Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 102% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 8.9% per annum as estimated by the twelve analysts watching the company. That's shaping up to be materially lower than the 12% each year growth forecast for the broader industry.
With this information, we find it concerning that GFL Environmental is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
What We Can Learn From GFL Environmental's P/S?
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Despite analysts forecasting some poorer-than-industry revenue growth figures for GFL Environmental, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
We don't want to rain on the parade too much, but we did also find 2 warning signs for GFL Environmental that you need to be mindful of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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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