Orca Energy Group Inc. (CVE:ORC.B) Held Back By Insufficient Growth Even After Shares Climb 26%

Orca Energy Group Inc. (CVE:ORC.B) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 36% in the last year.

Although its price has surged higher, Orca Energy Group may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Oil and Gas industry in Canada have P/S ratios greater than 2.4x and even P/S higher than 6x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Orca Energy Group

How Orca Energy Group Has Been Performing

Orca Energy Group could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Orca Energy Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Orca Energy Group?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Orca Energy Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 9.4%. The latest three year period has also seen a 8.3% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue growth is heading into negative territory, declining 21% over the next year. Meanwhile, the broader industry is forecast to expand by 4.9%, which paints a poor picture.

With this in consideration, we find it intriguing that Orca Energy Group's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Orca Energy Group's P/S?

Despite Orca Energy Group's share price climbing recently, its P/S still lags most other companies. 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Orca Energy Group's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Orca Energy Group's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Orca Energy Group has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.