Revenues Tell The Story For McPhy Energy S.A. (EPA:MCPHY) As Its Stock Soars 34%

McPhy Energy S.A. (EPA:MCPHY) shares have had a really impressive month, gaining 34% after a shaky period beforehand. But the last month did very little to improve the 76% share price decline over the last year.

After such a large jump in price, given around half the companies in France's Machinery industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider McPhy Energy as a stock to avoid entirely with its 4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on McPhy Energy.

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

The only time you'd be truly comfortable seeing a P/S as steep as McPhy Energy's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 17%. The strong recent performance means it was also able to grow revenue by 37% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 80% per annum during the coming three years according to the five analysts following the company. That's shaping up to be materially higher than the 6.4% per annum growth forecast for the broader industry.

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.

What Does McPhy Energy's P/S Mean For Investors?

McPhy Energy's P/S has grown nicely over the last month thanks to a handy boost in the share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that McPhy Energy maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Machinery industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for McPhy Energy (of which 1 doesn't sit too well with us!) you should know about.

If these risks are making you reconsider your opinion on McPhy Energy, 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.