Even With A 37% Surge, Cautious Investors Are Not Rewarding GURU Organic Energy Corp.'s (TSE:GURU) Performance Completely

GURU Organic Energy Corp. (TSE:GURU) shareholders have had their patience rewarded with a 37% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 34% in the last year.

Even after such a large jump in price, it's still not a stretch to say that GURU Organic Energy's price-to-sales (or "P/S") ratio of 2.6x right now seems quite "middle-of-the-road" compared to the Beverage industry in Canada, where the median P/S ratio is around 2.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for GURU Organic Energy

How GURU Organic Energy Has Been Performing

While the industry has experienced revenue growth lately, GURU Organic Energy's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is GURU Organic Energy's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like GURU Organic Energy's is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.6%. The last three years don't look nice either as the company has shrunk revenue by 5.8% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 19% over the next year. With the industry only predicted to deliver 5.9%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that GURU Organic Energy is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From GURU Organic Energy's P/S?

GURU Organic Energy's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Despite enticing revenue growth figures that outpace the industry, GURU Organic Energy's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

You always need to take note of risks, for example - GURU Organic Energy has 2 warning signs we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.