Market Participants Recognise Zedcor Inc.'s (CVE:ZDC) Revenues Pushing Shares 32% Higher

Zedcor Inc. (CVE:ZDC) shares have continued their recent momentum with a 32% gain in the last month alone. The last month tops off a massive increase of 144% in the last year.

Following the firm bounce in price, given around half the companies in Canada's Trade Distributors industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider Zedcor as a stock to avoid entirely with its 13.4x 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.

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Check out our latest analysis for Zedcor

How Has Zedcor Performed Recently?

Recent times have been advantageous for Zedcor as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Zedcor's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 73% gain to the company's top line. The latest three year period has also seen an excellent 152% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 63% per year during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 17% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Zedcor's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Zedcor's P/S Mean For Investors?

The strong share price surge has lead to Zedcor's P/S soaring as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Zedcor maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Trade Distributors industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Zedcor is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.