Ballard Power Systems Inc. (TSE:BLDP) Looks Just Right With A 28% Price Jump

Ballard Power Systems Inc. (TSE:BLDP) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 51% share price drop in the last twelve months.

Following the firm bounce in price, Ballard Power Systems may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 5.5x, since almost half of all companies in the Electrical in Canada have P/S ratios under 4.4x and even P/S lower than 1.9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Ballard Power Systems

How Has Ballard Power Systems Performed Recently?

With revenue growth that's inferior to most other companies of late, Ballard Power Systems has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Ballard Power Systems' Revenue Growth Trending?

Ballard Power Systems' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 4.6% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 31% per year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 26% per year, which is noticeably less attractive.

In light of this, it's understandable that Ballard Power Systems' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Ballard Power Systems' P/S

The large bounce in Ballard Power Systems' shares has lifted the company's P/S handsomely. 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.

Our look into Ballard Power Systems shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You always need to take note of risks, for example - Ballard Power Systems has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Ballard Power Systems, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.