Progressive Planet Solutions Inc. (CVE:PLAN) Held Back By Insufficient Growth Even After Shares Climb 32%

Progressive Planet Solutions Inc. (CVE:PLAN) shares have had a really impressive month, gaining 32% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 47% over that time.

In spite of the firm bounce in price, Progressive Planet Solutions may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.7x, considering almost half of all companies in the Metals and Mining industry in Canada have P/S ratios greater than 2.9x and even P/S higher than 16x aren't out of the ordinary. 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.

See our latest analysis for Progressive Planet Solutions

What Does Progressive Planet Solutions' P/S Mean For Shareholders?

Progressive Planet Solutions has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

How Is Progressive Planet Solutions' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Progressive Planet Solutions' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a decent 8.0% gain to the company's revenues. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 14% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Progressive Planet Solutions' P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Even after such a strong price move, Progressive Planet Solutions' P/S still trails the rest of the industry. 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.

In line with expectations, Progressive Planet Solutions maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Progressive Planet Solutions (of which 1 doesn't sit too well with us!) you should know about.

If these risks are making you reconsider your opinion on Progressive Planet Solutions, 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.