After Leaping 28% ShaMaran Petroleum Corp. (CVE:SNM) Shares Are Not Flying Under The Radar

ShaMaran Petroleum Corp. (CVE:SNM) shares have continued their recent momentum with a 28% gain in the last month alone. The annual gain comes to 171% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given close to half the companies operating in Canada's Oil and Gas industry have price-to-sales ratios (or "P/S") below 2x, you may consider ShaMaran Petroleum as a stock to potentially avoid with its 4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for ShaMaran Petroleum

How Has ShaMaran Petroleum Performed Recently?

ShaMaran Petroleum 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 ShaMaran Petroleum.

How Is ShaMaran Petroleum's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as ShaMaran Petroleum's is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 98%. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 47% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 5.2%, which is noticeably less attractive.

With this information, we can see why ShaMaran Petroleum is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From ShaMaran Petroleum's P/S?

ShaMaran Petroleum's P/S is on the rise since its shares have risen strongly. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that ShaMaran Petroleum 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. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware ShaMaran Petroleum is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

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.