Revenues Tell The Story For Zedcor Inc. (CVE:ZDC) As Its Stock Soars 28%

Despite an already strong run, Zedcor Inc. (CVE:ZDC) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 203% in the last year.

Since its price has surged higher, when almost half of 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 not worth researching with its 7.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Zedcor

How Has Zedcor Performed Recently?

Recent revenue growth for Zedcor has been in line with the industry. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Zedcor?

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

If we review the last year of revenue growth, the company posted a worthy increase of 3.5%. The latest three year period has also seen an excellent 159% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 60% per year over the next three years. That's shaping up to be materially higher than the 6.0% each year growth forecast for the broader industry.

With this information, we can see why Zedcor is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Zedcor have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Zedcor's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Zedcor you should know about.

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.