BluMetric Environmental Inc. (CVE:BLM) Soars 26% But It's A Story Of Risk Vs Reward

BluMetric Environmental Inc. (CVE:BLM) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 260% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, there still wouldn't be many who think BluMetric Environmental's price-to-sales (or "P/S") ratio of 1.3x is worth a mention when the median P/S in Canada's Commercial Services industry is similar at about 1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Our free stock report includes 4 warning signs investors should be aware of before investing in BluMetric Environmental. Read for free now.

See our latest analysis for BluMetric Environmental

How BluMetric Environmental Has Been Performing

Recent times have been advantageous for BluMetric Environmental as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

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

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

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. As a result, it also grew revenue by 15% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should demonstrate the company's robustness, generating growth of 33% as estimated by the sole analyst watching the company. Meanwhile, the broader industry is forecast to contract by 16%, which would indicate the company is doing very well.

In light of this, it's peculiar that BluMetric Environmental's P/S sits in-line with the majority of other companies. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.

The Bottom Line On BluMetric Environmental's P/S

BluMetric Environmental appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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 examination of BluMetric Environmental's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. Given the glowing revenue forecasts, we can only assume potential risks are what might be capping the P/S ratio at its current levels. The market could be pricing in the event that tough industry conditions will impact future revenues. It appears some are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

Having said that, be aware BluMetric Environmental is showing 4 warning signs in our investment analysis, you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.