Market Cool On Xstate Resources Limited's (ASX:XST) Revenues
Xstate Resources Limited's (ASX:XST) price-to-sales (or "P/S") ratio of 0.2x 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 7x and even P/S above 1100x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.
View our latest analysis for Xstate Resources
What Does Xstate Resources' Recent Performance Look Like?
Recent times have been quite advantageous for Xstate Resources as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Xstate Resources will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Xstate Resources will help you shine a light on its historical performance.
Do Revenue Forecasts Match The Low P/S Ratio?
Xstate Resources' 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.
Retrospectively, the last year delivered an exceptional 131% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
When compared to the industry's one-year growth forecast of 0.2%, the most recent medium-term revenue trajectory is noticeably more alluring
With this information, we find it odd that Xstate Resources is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.
What Does Xstate Resources' P/S Mean For Investors?
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of Xstate Resources revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Xstate Resources (2 are potentially serious) you should be aware 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).
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
