Why Investors Shouldn't Be Surprised By AtkinsRéalis' (TSE:ATRL) 28% Share Price Surge

Despite an already strong run, AtkinsRéalis (TSE:ATRL) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 82%.

In spite of the firm bounce in price, there still wouldn't be many who think AtkinsRéalis' price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in Canada's Construction industry is similar at about 1.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for AtkinsRéalis

How AtkinsRéalis Has Been Performing

With revenue growth that's inferior to most other companies of late, AtkinsRéalis has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

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

In order to justify its P/S ratio, AtkinsRéalis would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 14%. The latest three year period has also seen a 23% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 4.8% per year during the coming three years according to the eleven analysts following the company. With the industry predicted to deliver 6.1% growth per year, the company is positioned for a comparable revenue result.

With this information, we can see why AtkinsRéalis is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

AtkinsRéalis appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at AtkinsRéalis' revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

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

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.