Greenlane Renewables Inc. (TSE:GRN) Soars 71% But It's A Story Of Risk Vs Reward

Greenlane Renewables Inc. (TSE:GRN) shares have had a really impressive month, gaining 71% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 29% over that time.

Although its price has surged higher, Greenlane Renewables' price-to-sales (or "P/S") ratio of 0.3x might still make it look like a buy right now compared to the Oil and Gas industry in Canada, where around half of the companies have P/S ratios above 2x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Greenlane Renewables

How Has Greenlane Renewables Performed Recently?

Revenue has risen firmly for Greenlane Renewables recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Greenlane Renewables will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Greenlane Renewables will help you shine a light on its historical performance.

How Is Greenlane Renewables' Revenue Growth Trending?

In order to justify its P/S ratio, Greenlane Renewables would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. This was backed up an excellent period prior to see revenue up by 33% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 1.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Greenlane Renewables is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What Does Greenlane Renewables' P/S Mean For Investors?

The latest share price surge wasn't enough to lift Greenlane Renewables' P/S close to the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Greenlane Renewables revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You need to take note of risks, for example - Greenlane Renewables has 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.