Getting In Cheap On Green Impact Partners Inc. (CVE:GIP) Is Unlikely

There wouldn't be many who think Green Impact Partners Inc.'s (CVE:GIP) price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S for the Commercial Services industry in Canada is similar at about 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Green Impact Partners

How Green Impact Partners Has Been Performing

With revenue growth that's superior to most other companies of late, Green Impact Partners has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is Green Impact Partners' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Green Impact Partners' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 42% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 37% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 11% during the coming year according to the four analysts following the company. Meanwhile, the broader industry is forecast to expand by 7.3%, which paints a poor picture.

With this information, we find it concerning that Green Impact Partners is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It appears that Green Impact Partners currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

You should always think about risks. Case in point, we've spotted 2 warning signs for Green Impact Partners you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.