Central Petroleum Limited's (ASX:CTP) Shares Bounce 35% But Its Business Still Trails The Industry

Despite an already strong run, Central Petroleum Limited (ASX:CTP) shares have been powering on, with a gain of 35% in the last thirty days. Unfortunately, despite the strong performance over the last month, the full year gain of 2.9% isn't as attractive.

Although its price has surged higher, Central Petroleum may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.2x, since almost half of all companies in the Oil and Gas industry in Australia have P/S ratios greater than 4.3x and even P/S higher than 79x are not unusual. 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.

Check out our latest analysis for Central Petroleum

How Has Central Petroleum Performed Recently?

Recent times have been pleasing for Central Petroleum as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting future revenue performance to follow the rest of the industry downwards, which has kept the P/S suppressed. Those who are bullish on Central Petroleum will be hoping that this isn't the case and the company continues to beat out the industry.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Central Petroleum.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as depressed as Central Petroleum's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 21% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 27% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 7.9% per annum during the coming three years according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 11% per annum, which is noticeably more attractive.

With this in consideration, its clear as to why Central Petroleum's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Central Petroleum's P/S

Even after such a strong price move, Central Petroleum's P/S still trails the rest of the industry. 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.

As expected, our analysis of Central Petroleum's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. 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 Central Petroleum (2 can't be ignored!) that you need to take into consideration.

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.