Investors Interested In Xtract One Technologies Inc.'s (TSE:XTRA) Revenues

When close to half the companies in the Aerospace & Defense industry in Canada have price-to-sales ratios (or "P/S") below 2.5x, you may consider Xtract One Technologies Inc. (TSE:XTRA) as a stock to avoid entirely with its 5.4x 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 so lofty.

We've discovered 3 warning signs about Xtract One Technologies. View them for free.

Check out our latest analysis for Xtract One Technologies

What Does Xtract One Technologies' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Xtract One Technologies has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Xtract One Technologies?

In order to justify its P/S ratio, Xtract One Technologies would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 100% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 41% over the next year. That's shaping up to be materially higher than the 11% growth forecast for the broader industry.

With this information, we can see why Xtract One Technologies is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Xtract One Technologies' P/S

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 into Xtract One Technologies shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Xtract One Technologies you should be aware of.

If you're unsure about the strength of Xtract One Technologies' 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.