Atlas Engineered Products Ltd. (CVE:AEP) Not Flying Under The Radar

When close to half the companies in the Forestry industry in Canada have price-to-sales ratios (or "P/S") below 0.4x, you may consider Atlas Engineered Products Ltd. (CVE:AEP) as a stock to potentially avoid with its 1.6x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Atlas Engineered Products

What Does Atlas Engineered Products' P/S Mean For Shareholders?

Atlas Engineered Products certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Atlas Engineered Products will help you uncover what's on the horizon.

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 Atlas Engineered Products' to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 9.5%. The latest three year period has also seen a 5.4% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 28% over the next year. With the industry only predicted to deliver 1.9%, the company is positioned for a stronger revenue result.

With this information, we can see why Atlas Engineered Products 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

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.

We've established that Atlas Engineered Products maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Forestry industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 3 warning signs for Atlas Engineered Products that you should be aware of.

If you're unsure about the strength of Atlas Engineered Products' 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.