Shareholders Should Be Pleased With Ballard Power Systems Inc.'s (TSE:BLDP) Price

With a median price-to-sales (or "P/S") ratio of close to 5.3x in the Electrical industry in Canada, you could be forgiven for feeling indifferent about Ballard Power Systems Inc.'s (TSE:BLDP) P/S ratio of 5.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Ballard Power Systems

How Ballard Power Systems Has Been Performing

Ballard Power Systems certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ballard Power Systems.

How Is Ballard Power Systems' Revenue Growth Trending?

Ballard Power Systems' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 40% gain to the company's top line. As a result, it also grew revenue by 6.1% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 42% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 46% each year, which is not materially different.

With this information, we can see why Ballard Power Systems is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Ballard Power Systems' P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've seen that Ballard Power Systems maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Ballard Power Systems that you should be aware of.

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

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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.