After Leaping 25% Energy Fuels Inc. (TSE:EFR) Shares Are Not Flying Under The Radar

Energy Fuels Inc. (TSE:EFR) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 8.7% isn't as impressive.

After such a large jump in price, given around half the companies in Canada's Oil and Gas industry have price-to-sales ratios (or "P/S") below 2.3x, you may consider Energy Fuels as a stock to avoid entirely with its 24.8x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Energy Fuels

What Does Energy Fuels' P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Energy Fuels has been doing quite well of late. The P/S ratio is probably high because investors think the company will continue to navigate the broader industry headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Energy Fuels' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 50% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 98% each year over the next three years. With the industry only predicted to deliver 9.4% each year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Energy Fuels' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Energy Fuels' P/S

Shares in Energy Fuels have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Energy Fuels 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Energy Fuels.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.