CEMATRIX Corporation's (CVE:CVX) Subdued P/S Might Signal An Opportunity

When you see that almost half of the companies in the Basic Materials industry in Canada have price-to-sales ratios (or "P/S") above 3.1x, CEMATRIX Corporation (CVE:CVX) looks to be giving off very strong buy signals with its 1x 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 so limited.

Check out our latest analysis for CEMATRIX

How CEMATRIX Has Been Performing

With revenue growth that's superior to most other companies of late, CEMATRIX has been doing relatively well. 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?

In order to justify its P/S ratio, CEMATRIX would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 52% last year. The latest three year period has also seen an excellent 53% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 26% as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 11% growth forecast for the broader industry.

In light of this, it's peculiar that CEMATRIX's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

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. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for CEMATRIX that you need to be mindful of.

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.

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

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.