After Leaping 30% Cameco Corporation (TSE:CCO) Shares Are Not Flying Under The Radar

Cameco Corporation (TSE:CCO) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

After such a large jump in price, when almost half of the companies in Canada's Oil and Gas industry have price-to-sales ratios (or "P/S") below 1.7x, you may consider Cameco as a stock not worth researching with its 9.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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Check out our latest analysis for Cameco

What Does Cameco's Recent Performance Look Like?

Cameco certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Cameco?

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

If we review the last year of revenue growth, the company posted a terrific increase of 30%. The latest three year period has also seen an excellent 108% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 6.5% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 2.2% per year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Cameco's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Cameco's P/S?

The strong share price surge has lead to Cameco's P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Cameco 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. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Cameco with six simple checks on some of these key factors.

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.