Tourmaline Oil Corp.'s (TSE:TOU) Share Price Matching Investor Opinion

When close to half the companies in the Oil and Gas industry in Canada have price-to-sales ratios (or "P/S") below 1.9x, you may consider Tourmaline Oil Corp. (TSE:TOU) as a stock to avoid entirely with its 4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Tourmaline Oil

How Has Tourmaline Oil Performed Recently?

Tourmaline Oil hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Tourmaline Oil's Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 25%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 147% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 34% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 11% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Tourmaline Oil's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Tourmaline Oil 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. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Tourmaline Oil has 3 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Tourmaline Oil, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.