Revenues Tell The Story For GURU Organic Energy Corp. (TSE:GURU) As Its Stock Soars 34%

GURU Organic Energy Corp. (TSE:GURU) shares have continued their recent momentum with a 34% gain in the last month alone. The last month tops off a massive increase of 266% in the last year.

Following the firm bounce in price, when almost half of the companies in Canada's Beverage industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider GURU Organic Energy as a stock not worth researching with its 5.9x 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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Check out our latest analysis for GURU Organic Energy

How GURU Organic Energy Has Been Performing

Recent revenue growth for GURU Organic Energy has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on GURU Organic Energy will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For GURU Organic Energy?

The only time you'd be truly comfortable seeing a P/S as steep as GURU Organic Energy's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.3% last year. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. 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 20% over the next year. That's shaping up to be materially higher than the 6.3% growth forecast for the broader industry.

With this information, we can see why GURU Organic Energy 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.

The Key Takeaway

The strong share price surge has lead to GURU Organic Energy's P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into GURU Organic Energy shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

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.

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.

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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.