Viva Energy Group Limited's (ASX:VEA) Business And Shares Still Trailing The Industry

With a price-to-sales (or "P/S") ratio of 0.1x Viva Energy Group Limited (ASX:VEA) may be sending very bullish signals at the moment, given that almost half of all the Oil and Gas companies in Australia have P/S ratios greater than 5.1x and even P/S higher than 81x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Viva Energy Group

What Does Viva Energy Group's P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Viva Energy Group 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Viva Energy Group will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Viva Energy Group?

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

Retrospectively, the last year delivered a decent 2.8% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 119% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 3.3% per annum during the coming three years according to the ten analysts following the company. With the industry predicted to deliver 683% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Viva Energy Group'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 We Can Learn From Viva Energy Group's P/S?

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.

We've established that Viva Energy Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

Having said that, be aware Viva Energy Group is showing 4 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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.

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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.