With NG Energy International Corp. (CVE:GASX) It Looks Like You'll Get What You Pay For

When close to half the companies in the Oil and Gas industry in Canada have price-to-sales ratios (or "P/S") below 2x, you may consider NG Energy International Corp. (CVE:GASX) as a stock to avoid entirely with its 6.8x P/S ratio. 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 NG Energy International

How Has NG Energy International Performed Recently?

NG Energy International certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on NG Energy International.

How Is NG Energy International's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like NG Energy International's to be considered reasonable.

Retrospectively, the last year delivered an explosive gain to the company's top line. Although, its longer-term performance hasn't been anywhere near as strong with three-year revenue growth being relatively non-existent overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 276% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 0.5%, which is noticeably less attractive.

In light of this, it's understandable that NG Energy International'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

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that NG Energy International 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.

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

If these risks are making you reconsider your opinion on NG Energy International, 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.