Obsidian Energy Ltd.'s (TSE:OBE) Shares Not Telling The Full Story

Obsidian Energy Ltd.'s (TSE:OBE) price-to-sales (or "P/S") ratio of 0.9x might 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 2.1x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Obsidian Energy

How Obsidian Energy Has Been Performing

Recent times haven't been great for Obsidian Energy as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Obsidian Energy?

The only time you'd be truly comfortable seeing a P/S as low as Obsidian Energy's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 3.1% gain to the company's revenues. Pleasingly, revenue has also lifted 82% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 22% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 0.4% growth forecast for the broader industry.

In light of this, it's peculiar that Obsidian Energy's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Obsidian Energy's P/S?

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.

Obsidian Energy's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Obsidian Energy that you should be aware of.

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.