Amplitude Energy Limited's (ASX:AEL) Share Price Boosted 28% But Its Business Prospects Need A Lift Too

Despite an already strong run, Amplitude Energy Limited (ASX:AEL) shares have been powering on, with a gain of 28% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 2.2% isn't as impressive.

Even after such a large jump in price, Amplitude Energy may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.5x, considering almost half of all companies in the Oil and Gas industry in Australia have P/S ratios greater than 6.3x and even P/S higher than 153x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Amplitude Energy

What Does Amplitude Energy's Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Amplitude Energy has been doing quite well of late. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. If you 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 Amplitude 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 Amplitude Energy?

Amplitude 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.

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. The strong recent performance means it was also able to grow revenue by 38% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the nine analysts watching the company. With the industry predicted to deliver 1,003% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Amplitude Energy's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Amplitude Energy's P/S Mean For Investors?

Even after such a strong price move, Amplitude Energy's P/S still trails the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of Amplitude Energy's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you settle on your opinion, we've discovered 1 warning sign for Amplitude Energy that you should be aware of.

If these risks are making you reconsider your opinion on Amplitude Energy, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.