Investors Give Vital Energy Inc. (CVE:VUX) Shares A 28% Hiding

Vital Energy Inc. (CVE:VUX) shares have had a horrible month, losing 28% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 53% share price decline.

Following the heavy fall in price, Vital Energy's price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Oil and Gas industry in Canada, where around half of the companies have P/S ratios above 2.1x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for Vital Energy

What Does Vital Energy's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Vital Energy has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. 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 out of favour.

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

Is There Any Revenue Growth Forecasted For Vital Energy?

The only time you'd be truly comfortable seeing a P/S as low as Vital Energy's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 74% gain to the company's top line. The latest three year period has also seen a 25% overall rise in revenue, aided extensively 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.

This is in contrast to the rest of the industry, which is expected to grow by 5.2% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Vital Energy's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Vital Energy's recently weak share price has pulled its P/S back below other Oil and Gas companies. 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.

Our examination of Vital Energy revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 4 warning signs for Vital Energy (2 are concerning!) that we have uncovered.

If you're unsure about the strength of Vital Energy's 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.