Investors Still Waiting For A Pull Back In Birchcliff Energy Ltd. (TSE:BIR)

When close to half the companies in the Oil and Gas industry in Canada have price-to-sales ratios (or "P/S") below 1.9x, you may consider Birchcliff Energy Ltd. (TSE:BIR) as a stock to potentially avoid with its 2.5x 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.

Check out our latest analysis for Birchcliff Energy

What Does Birchcliff Energy's P/S Mean For Shareholders?

Birchcliff Energy 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.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Birchcliff Energy?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Birchcliff Energy's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 31%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 10% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 4.0% growth forecast for the broader industry.

In light of this, it's understandable that Birchcliff Energy's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Birchcliff Energy'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 Birchcliff Energy maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Oil and Gas industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - Birchcliff Energy has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.