Market Participants Recognise GreenFirst Forest Products Inc.'s (TSE:GFP) Revenues Pushing Shares 30% Higher

GreenFirst Forest Products Inc. (TSE:GFP) shareholders have had their patience rewarded with a 30% share price jump in the last month. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 55% share price drop in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think GreenFirst Forest Products' price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Canada's Forestry industry is similar at about 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for GreenFirst Forest Products

What Does GreenFirst Forest Products' Recent Performance Look Like?

For instance, GreenFirst Forest Products' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for GreenFirst Forest Products, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For GreenFirst Forest Products?

The only time you'd be comfortable seeing a P/S like GreenFirst Forest Products' 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 8.8%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

It's interesting to note that the rest of the industry is similarly expected to grow by 1.6% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's understandable that GreenFirst Forest Products' P/S sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Final Word

GreenFirst Forest Products' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we've seen, GreenFirst Forest Products' three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you settle on your opinion, we've discovered 4 warning signs for GreenFirst Forest Products (3 shouldn't be ignored!) that 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.

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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.