The Price Is Right For Energy Fuels Inc. (TSE:EFR) Even After Diving 41%

The Energy Fuels Inc. (TSE:EFR) share price has softened a substantial 41% over the previous 30 days, handing back much of the gains the stock has made lately. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 131% in the last twelve months.

In spite of the heavy fall in price, when almost half of the companies in Canada's Oil and Gas industry have price-to-sales ratios (or "P/S") below 2.4x, you may still consider Energy Fuels as a stock not worth researching with its 46.6x 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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View our latest analysis for Energy Fuels

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

Energy Fuels certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Energy Fuels' Revenue Growth Trending?

In order to justify its P/S ratio, Energy Fuels would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 104% last year. 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.

Looking ahead now, revenue is anticipated to climb by 61% per annum during the coming three years according to the three analysts following the company. With the industry only predicted to deliver 3.6% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Energy Fuels' 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 Does Energy Fuels' P/S Mean For Investors?

Energy Fuels' shares may have suffered, but its P/S remains high. 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. 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.

Plus, you should also learn about these 4 warning signs we've spotted with Energy Fuels (including 1 which is a bit unpleasant).

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.