Orbit Garant Drilling Inc. (TSE:OGD) Stock Catapults 25% Though Its Price And Business Still Lag The Industry

The Orbit Garant Drilling Inc. (TSE:OGD) share price has done very well over the last month, posting an excellent gain of 25%. The annual gain comes to 164% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Orbit Garant Drilling's price-to-sales (or "P/S") ratio of 0.3x might still make it look like a strong buy right now compared to the wider Metals and Mining industry in Canada, where around half of the companies have P/S ratios above 3.7x and even P/S above 26x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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Check out our latest analysis for Orbit Garant Drilling

What Does Orbit Garant Drilling's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Orbit Garant Drilling has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

How Is Orbit Garant Drilling's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Orbit Garant Drilling's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 2.5%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 2.8% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 7.6% as estimated by the only analyst watching the company. With the industry predicted to deliver 66% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Orbit Garant Drilling's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Orbit Garant Drilling's P/S Mean For Investors?

Orbit Garant Drilling's recent share price jump still sees fails to bring its P/S alongside the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Orbit Garant Drilling maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Orbit Garant Drilling that we have uncovered.

If you're unsure about the strength of Orbit Garant Drilling's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.