Western Energy Services Corp. (TSE:WRG) Might Not Be As Mispriced As It Looks

There wouldn't be many who think Western Energy Services Corp.'s (TSE:WRG) price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S for the Energy Services industry in Canada is similar at about 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Western Energy Services

What Does Western Energy Services' P/S Mean For Shareholders?

Western Energy Services could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. 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 Western Energy Services.

What Are Revenue Growth Metrics Telling Us About The P/S?

Western Energy Services' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 6.4%. This was backed up an excellent period prior to see revenue up by 58% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 3.3% each year during the coming three years according to the two analysts following the company. With the industry only predicted to deliver 1.1% per annum, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Western Energy Services' P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Western Energy Services' P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Western Energy Services currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Western Energy Services you should be aware of.

If you're unsure about the strength of Western Energy Services' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.