Fewer Investors Than Expected Jumping On Tornado Infrastructure Equipment Ltd. (CVE:TGH)

With a median price-to-sales (or "P/S") ratio of close to 0.7x in the Machinery industry in Canada, you could be forgiven for feeling indifferent about Tornado Infrastructure Equipment Ltd.'s (CVE:TGH) P/S ratio of 0.9x. 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.

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View our latest analysis for Tornado Infrastructure Equipment

How Has Tornado Infrastructure Equipment Performed Recently?

Tornado Infrastructure Equipment 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 the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Tornado Infrastructure Equipment's future stacks up against the industry? In that case, our free report is a great place to start .

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 43% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 13% per annum during the coming three years according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 3.6% each year, which is noticeably less attractive.

With this information, we find it interesting that Tornado Infrastructure Equipment is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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.

We've established that Tornado Infrastructure Equipment currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Tornado Infrastructure Equipment you should be aware of.

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

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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.