McPhy Energy S.A. (EPA:ALMCP) Stocks Shoot Up 49% But Its P/S Still Looks Reasonable

McPhy Energy S.A. (EPA:ALMCP) shareholders are no doubt pleased to see that the share price has bounced 49% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 57% share price drop in the last twelve months.

Following the firm bounce in price, you could be forgiven for thinking McPhy Energy is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.9x, considering almost half the companies in France's Machinery industry have P/S ratios below 0.9x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for McPhy Energy

How McPhy Energy Has Been Performing

McPhy Energy certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think McPhy Energy's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

McPhy Energy's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. The latest three year period has also seen an excellent 57% 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.

Looking ahead now, revenue is anticipated to climb by 39% during the coming year according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 4.1%, which is noticeably less attractive.

With this in mind, it's not hard to understand why McPhy Energy's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The large bounce in McPhy Energy's shares has lifted the company's P/S handsomely. 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 look into McPhy Energy shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware McPhy Energy is showing 5 warning signs in our investment analysis, and 1 of those is concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.