Revenues Working Against Pieridae Energy Limited's (TSE:PEA) Share Price

You may think that with a price-to-sales (or "P/S") ratio of 0.3x Pieridae Energy Limited (TSE:PEA) is a stock worth checking out, seeing as almost half of all the Oil and Gas companies in Canada have P/S ratios greater than 2x and even P/S higher than 6x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Pieridae Energy

How Has Pieridae Energy Performed Recently?

For instance, Pieridae Energy's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Pieridae Energy will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Pieridae Energy's earnings, revenue and cash flow.

How Is Pieridae Energy's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 43% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 23% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 1.0% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why Pieridae Energy's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Pieridae Energy's P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Pieridae Energy revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Pieridae Energy (including 1 which is a bit concerning).

If these risks are making you reconsider your opinion on Pieridae 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.