Vulcan Energy Resources Limited's (ASX:VUL) Shares Bounce 42% But Its Business Still Trails The Industry

Despite an already strong run, Vulcan Energy Resources Limited (ASX:VUL) shares have been powering on, with a gain of 42% in the last thirty days. The last month tops off a massive increase of 191% in the last year.

Even after such a large jump in price, Vulcan Energy Resources may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 29.2x, considering almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 63.1x and even P/S higher than 322x 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 so limited.

Check out our latest analysis for Vulcan Energy Resources

What Does Vulcan Energy Resources' P/S Mean For Shareholders?

Recent times haven't been great for Vulcan Energy Resources as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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

Vulcan Energy Resources' 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.

If we review the last year of revenue growth, the company posted a terrific increase of 59%. The strong recent performance means it was also able to grow revenue by 276% 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 55% each year as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 526% each year, which is noticeably more attractive.

With this in consideration, its clear as to why Vulcan Energy Resources' P/S is falling short industry peers. 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 Vulcan Energy Resources' P/S?

Shares in Vulcan Energy Resources have risen appreciably however, its P/S is still subdued. 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.

We've established that Vulcan Energy Resources maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for Vulcan Energy Resources you should be aware of, and 1 of them is concerning.

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.

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.