Orbit Garant Drilling Inc.'s (TSE:OGD) Prospects Need A Boost To Lift Shares
With a price-to-sales (or "P/S") ratio of 0.2x Orbit Garant Drilling Inc. (TSE:OGD) may be sending very bullish signals at the moment, given that almost half of all the Metals and Mining companies in Canada have P/S ratios greater than 2.8x and even P/S higher than 22x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
Check out our latest analysis for Orbit Garant Drilling
What Does Orbit Garant Drilling's P/S Mean For Shareholders?
Orbit Garant Drilling could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.
Want the full picture on analyst estimates for the company? Then our free report on Orbit Garant Drilling will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
In order to justify its P/S ratio, Orbit Garant Drilling would need to produce anemic growth that's substantially trailing the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 8.4% last year. Revenue has also lifted 25% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 7.7% during the coming year according to the one analyst following the company. That's shaping up to be materially lower than the 16% growth forecast for the broader industry.
In light of this, it's understandable that Orbit Garant Drilling's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What Does Orbit Garant Drilling's P/S Mean For Investors?
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
As expected, our analysis of Orbit Garant Drilling's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.
It is also worth noting that we have found 3 warning signs for Orbit Garant Drilling (2 are potentially serious!) that you need to take into consideration.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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
