Wellfield Technologies Inc. (CVE:WFLD) Surges 50% Yet Its Low P/S Is No Reason For Excitement

Wellfield Technologies Inc. (CVE:WFLD) shareholders would be excited to see that the share price has had a great month, posting a 50% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 59% share price drop in the last twelve months.

Even after such a large jump in price, Wellfield Technologies may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Software industry in Canada have P/S ratios greater than 3.3x and even P/S higher than 9x are not unusual. 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.

View our latest analysis for Wellfield Technologies

What Does Wellfield Technologies' P/S Mean For Shareholders?

Revenue has risen firmly for Wellfield Technologies recently, which is pleasing to see. 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. Those who are bullish on Wellfield Technologies will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Wellfield Technologies will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Wellfield Technologies?

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

Retrospectively, the last year delivered a decent 8.6% 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. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 21% shows it's noticeably less attractive.

With this information, we can see why Wellfield Technologies is trading at a P/S lower than the industry. 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.

What Does Wellfield Technologies' P/S Mean For Investors?

Even after such a strong price move, Wellfield Technologies' 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.

Our examination of Wellfield Technologies confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Before you take the next step, you should know about the 4 warning signs for Wellfield Technologies (3 are concerning!) that we have uncovered.

If these risks are making you reconsider your opinion on Wellfield Technologies, 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.