Investors Appear Satisfied With GURU Organic Energy Corp.'s (TSE:GURU) Prospects As Shares Rocket 34%

GURU Organic Energy Corp. (TSE:GURU) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 15% in the last twelve months.

Following the firm bounce in price, given close to half the companies operating in Canada's Beverage industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider GURU Organic Energy as a stock to potentially avoid with its 1.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for GURU Organic Energy

What Does GURU Organic Energy's Recent Performance Look Like?

Recent times haven't been great for GURU Organic Energy as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should 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 15% per year during the coming three years according to the dual analysts following the company. That's shaping up to be materially higher than the 4.4% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why GURU Organic Energy's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On GURU Organic Energy's P/S

GURU Organic Energy shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

As we suspected, our examination of GURU Organic Energy's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for GURU Organic Energy you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.