Getting In Cheap On Crescent Point Energy Corp. (TSE:CPG) Is Unlikely

With a median price-to-sales (or "P/S") ratio of close to 1.9x in the Oil and Gas industry in Canada, you could be forgiven for feeling indifferent about Crescent Point Energy Corp.'s (TSE:CPG) P/S ratio of 1.6x. 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 Crescent Point Energy

What Does Crescent Point Energy's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Crescent Point Energy has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Crescent Point Energy's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 2.9% last year. This was backed up an excellent period prior to see revenue up by 109% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 5.8% per year during the coming three years according to the four analysts following the company. With the industry predicted to deliver 13% growth per annum, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Crescent Point Energy's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

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.

When you consider that Crescent Point Energy's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Crescent Point Energy you should know about.

If these risks are making you reconsider your opinion on Crescent Point 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.