GURU Organic Energy Corp. (TSE:GURU) Looks Just Right With A 25% Price Jump

GURU Organic Energy Corp. (TSE:GURU) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. The annual gain comes to 219% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, when almost half of the companies in Canada's Beverage industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider GURU Organic Energy as a stock not worth researching with its 4.9x 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.

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See our latest analysis for GURU Organic Energy

How GURU Organic Energy Has Been Performing

There hasn't been much to differentiate GURU Organic Energy's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Is There Enough Revenue Growth Forecasted For GURU Organic Energy?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 3.3% last year. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 20% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 5.0%, which is noticeably less attractive.

With this information, we can see why GURU Organic Energy is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

GURU Organic Energy's P/S has grown nicely over the last month thanks to a handy boost in the share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into GURU Organic Energy shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for GURU Organic Energy with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.