Sentiment Still Eluding Cleantek Industries Inc. (CVE:CTEK)

It's not a stretch to say that Cleantek Industries Inc.'s (CVE:CTEK) price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" for companies in the Energy Services industry in Canada, where the median P/S ratio is around 0.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Cleantek Industries

What Does Cleantek Industries' P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for Cleantek Industries, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Cleantek Industries, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Cleantek Industries' Revenue Growth Trending?

In order to justify its P/S ratio, Cleantek Industries would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 6.7%. The latest three year period has also seen an excellent 84% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

In contrast to the company, the rest of the industry is expected to decline by 14% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

In light of this, it's peculiar that Cleantek Industries' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Cleantek Industries' P/S Mean For Investors?

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.

As mentioned previously, Cleantek Industries currently trades on a P/S on par with the wider industry, but this is lower than expected considering its recent three-year revenue growth is beating forecasts for a struggling industry. There could be some unobserved threats to revenue preventing the P/S ratio from outpacing the industry much like its revenue performance. Without the guidance of analysts, perhaps shareholders are feeling uncertain over whether the revenue performance can continue amidst a declining industry outlook. The fact that the company's relative performance has not provided a kick to the share price suggests that some investors are anticipating revenue instability.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Cleantek Industries, and understanding these should be part of your investment process.

If you're unsure about the strength of Cleantek Industries' 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.