Cameco Corporation (TSE:CCO) Stocks Shoot Up 40% But Its P/S Still Looks Reasonable

Cameco Corporation (TSE:CCO) shares have had a really impressive month, gaining 40% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 37% in the last year.

Following the firm bounce in price, when almost half of the companies in Canada's Oil and Gas industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider Cameco as a stock not worth researching with its 11.5x 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.

Check out our latest analysis for Cameco

How Cameco Has Been Performing

Cameco certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Cameco will help you uncover what's on the horizon.

How Is Cameco's Revenue Growth Trending?

Cameco's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. The strong recent performance means it was also able to grow revenue by 68% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 8.5% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 1.2% 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. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into Cameco shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Cameco with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Cameco's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.