Vertex Resource Group Ltd. (CVE:VTX) Screens Well But There Might Be A Catch

When close to half the companies operating in the Commercial Services industry in Canada have price-to-sales ratios (or "P/S") above 1.1x, you may consider Vertex Resource Group Ltd. (CVE:VTX) as an attractive investment with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Vertex Resource Group

How Vertex Resource Group Has Been Performing

While the industry has experienced revenue growth lately, Vertex Resource Group's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Is There Any Revenue Growth Forecasted For Vertex Resource Group?

In order to justify its P/S ratio, Vertex Resource Group would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 2.8% decrease to the company's top line. Still, the latest three year period has seen an excellent 58% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue growth will show minor resilience over the next year growing only by 3.7%. Meanwhile, the broader industry is forecast to contract by 3.4%, which would indicate the company is doing better than the majority of its peers.

With this in consideration, we find it intriguing that Vertex Resource Group's P/S falls short of its industry peers. Apparently some shareholders are doubtful of the contrarian forecasts and have been accepting significantly lower selling prices.

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.

We've established that Vertex Resource Group currently trades on a much lower than expected P/S since its growth forecasts are potentially beating a struggling industry. There could be some major unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Vertex Resource Group, and understanding them should be part of your investment process.

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.