With Anaergia Inc. (TSE:ANRG) It Looks Like You'll Get What You Pay For

When close to half the companies in the Commercial Services industry in Canada have price-to-sales ratios (or "P/S") below 1x, you may consider Anaergia Inc. (TSE:ANRG) as a stock to potentially avoid with its 1.7x 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 as high as it is.

We've discovered 4 warning signs about Anaergia. View them for free.

See our latest analysis for Anaergia

What Does Anaergia's Recent Performance Look Like?

Anaergia could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Anaergia's Revenue Growth Trending?

In order to justify its P/S ratio, Anaergia would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 24% decrease to the company's top line. As a result, revenue from three years ago have also fallen 14% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 21% during the coming year according to the lone analyst following the company. Meanwhile, the broader industry is forecast to contract by 16%, which would indicate the company is doing very well.

With this in consideration, we understand why Anaergia's P/S is a cut above its industry peers. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader industry going backwards.

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

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 can see that Anaergia maintains its high P/S on the strength of its forecast growth potentially beating a struggling industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Questions could still raised over whether this level of outperformance can continue in the context of a a tumultuous industry climate. Although, if the company's prospects don't change they will continue to provide strong support to the share price.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Anaergia (2 are a bit unpleasant!) that you should be aware of before investing here.

If you're unsure about the strength of Anaergia's 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.