Benign Growth For Baytex Energy Corp. (TSE:BTE) Underpins Stock's 29% Plummet

Unfortunately for some shareholders, the Baytex Energy Corp. (TSE:BTE) share price has dived 29% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 60% share price decline.

Following the heavy fall in price, Baytex Energy's price-to-sales (or "P/S") ratio of 0.5x might make it look like a buy right now compared to the Oil and Gas industry in Canada, where around half of the companies have P/S ratios above 1.8x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for Baytex Energy

How Has Baytex Energy Performed Recently?

With revenue growth that's superior to most other companies of late, Baytex Energy has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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 out of favour.

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Is There Any Revenue Growth Forecasted For Baytex Energy?

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

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. The latest three year period has also seen an excellent 118% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 2.9% per annum during the coming three years according to the five analysts following the company. That's not great when the rest of the industry is expected to grow by 3.4% each year.

With this in consideration, we find it intriguing that Baytex Energy's P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Baytex Energy's P/S has taken a dip along with its share price. 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.

As we suspected, our examination of Baytex Energy's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Baytex Energy's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 4 warning signs for Baytex Energy (1 makes us a bit uncomfortable!) that you should be aware of.

If these risks are making you reconsider your opinion on Baytex Energy, 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.