Westport Fuel Systems Inc. (TSE:WPRT) Stock Rockets 25% But Many Are Still Ignoring The Company

Westport Fuel Systems Inc. (TSE:WPRT) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 21% in the last twelve months.

Although its price has surged higher, when close to half the companies operating in Canada's Machinery industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Westport Fuel Systems as an enticing stock to check out with its 0.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Westport Fuel Systems

What Does Westport Fuel Systems' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Westport Fuel Systems' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think Westport Fuel Systems' 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?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Westport Fuel Systems' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.6%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 5.5% each year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 4.3% per year, which is not materially different.

With this information, we find it odd that Westport Fuel Systems is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.

What Does Westport Fuel Systems' P/S Mean For Investors?

Westport Fuel Systems' stock price has surged recently, but its but its P/S still remains modest. 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 examination of Westport Fuel Systems' revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Westport Fuel Systems, and understanding these should be part of your investment process.

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.

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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.