Market Cool On AKITA Drilling Ltd.'s (TSE:AKT.A) Revenues

With a median price-to-sales (or "P/S") ratio of close to 0.4x in the Energy Services industry in Canada, you could be forgiven for feeling indifferent about AKITA Drilling Ltd.'s (TSE:AKT.A) P/S ratio of 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for AKITA Drilling

What Does AKITA Drilling's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, AKITA Drilling 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 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 AKITA Drilling's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 35%. The strong recent performance means it was also able to grow revenue by 69% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should demonstrate some strength in company's business, generating growth of 3.9% per year as estimated by the only analyst watching the company. Meanwhile, the broader industry is forecast to contract by 7.7% each year, which would indicate the company is doing better than the majority of its peers.

Despite the marginal growth, we find it odd that AKITA Drilling is trading at a fairly similar P/S to the industry. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.

What Does AKITA Drilling's P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that AKITA Drilling currently trades on a lower than expected P/S since its growth forecasts are potentially beating a struggling industry. 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. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for AKITA Drilling that you should be aware of.

If these risks are making you reconsider your opinion on AKITA Drilling, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.