Touchstone Exploration Inc.'s (TSE:TXP) Subdued P/S Might Signal An Opportunity

There wouldn't be many who think Touchstone Exploration Inc.'s (TSE:TXP) price-to-sales (or "P/S") ratio of 1.8x is worth a mention when the median P/S for the Oil and Gas industry in Canada is similar at about 2.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Touchstone Exploration

What Does Touchstone Exploration's P/S Mean For Shareholders?

Touchstone Exploration could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Touchstone Exploration?

The only time you'd be comfortable seeing a P/S like Touchstone Exploration's is when the company's growth is tracking the industry closely.

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 9.1%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 70% 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.

Looking ahead now, revenue is anticipated to climb by 61% during the coming year according to the dual analysts following the company. That's shaping up to be materially higher than the 5.9% growth forecast for the broader industry.

With this information, we find it interesting that Touchstone Exploration is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Touchstone Exploration's P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Looking at Touchstone Exploration's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Touchstone Exploration (1 is concerning!) that you should be aware of before investing here.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.