Fewer Investors Than Expected Jumping On CEMATRIX Corporation (TSE:CEMX)

CEMATRIX Corporation's (TSE:CEMX) price-to-sales (or "P/S") ratio of 1.1x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Basic Materials industry in Canada have P/S ratios greater than 2.7x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for CEMATRIX

What Does CEMATRIX's P/S Mean For Shareholders?

CEMATRIX certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is CEMATRIX's Revenue Growth Trending?

CEMATRIX's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 76%. The strong recent performance means it was also able to grow revenue by 101% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 15% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 8.4%, which is noticeably less attractive.

In light of this, it's peculiar that CEMATRIX's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

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.

A look at CEMATRIX's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Before you take the next step, you should know about the 2 warning signs for CEMATRIX that we have uncovered.

If these risks are making you reconsider your opinion on CEMATRIX, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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