Peninsula Energy Limited's (ASX:PEN) Price Is Right But Growth Is Lacking After Shares Rocket 30%

Peninsula Energy Limited (ASX:PEN) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

Although its price has surged higher, Peninsula Energy may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 4.1x, considering almost half of all companies in the Oil and Gas industry in Australia have P/S ratios greater than 6.6x and even P/S higher than 220x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Peninsula Energy

How Has Peninsula Energy Performed Recently?

With revenue growth that's superior to most other companies of late, Peninsula Energy has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Peninsula Energy's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Peninsula Energy's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Peninsula Energy's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 121% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 34% per annum as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 392% each year, which is noticeably more attractive.

With this in consideration, its clear as to why Peninsula Energy'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 Key Takeaway

Despite Peninsula Energy's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As expected, our analysis of Peninsula 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. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Peninsula Energy you should be aware of, and 1 of them makes us a bit uncomfortable.

If you're unsure about the strength of Peninsula Energy's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.