Touchstone Exploration Inc.'s (TSE:TXP) P/S Is Still On The Mark Following 26% Share Price Bounce

Touchstone Exploration Inc. (TSE:TXP) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 26% in the last twelve months.

Following the firm bounce in price, you could be forgiven for thinking Touchstone Exploration is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5.7x, considering almost half the companies in Canada's Oil and Gas industry have P/S ratios below 2.1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Touchstone Exploration

How Has Touchstone Exploration Performed Recently?

While the industry has experienced revenue growth lately, Touchstone Exploration's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. 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 Touchstone Exploration.

Is There Enough Revenue Growth Forecasted For Touchstone Exploration?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.5%. Even so, admirably revenue has lifted 52% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 174% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 11% growth forecast for the broader industry.

In light of this, it's understandable that Touchstone Exploration's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Touchstone Exploration have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Touchstone Exploration 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Touchstone Exploration is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Touchstone Exploration, 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.