What TotalEnergies EP Gabon Société Anonyme's (EPA:EC) 26% Share Price Gain Is Not Telling You

TotalEnergies EP Gabon Société Anonyme (EPA:EC) shareholders have had their patience rewarded with a 26% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 25% in the last year.

Although its price has surged higher, there still wouldn't be many who think TotalEnergies EP Gabon Société Anonyme's price-to-sales (or "P/S") ratio of 1.9x is worth a mention when it essentially matches the median P/S in France's Oil and Gas industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for TotalEnergies EP Gabon Société Anonyme

How Has TotalEnergies EP Gabon Société Anonyme Performed Recently?

It looks like revenue growth has deserted TotalEnergies EP Gabon Société Anonyme recently, which is not something to boast about. One possibility is that the P/S is moderate because investors think this benign revenue growth rate might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on TotalEnergies EP Gabon Société Anonyme's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For TotalEnergies EP Gabon Société Anonyme?

In order to justify its P/S ratio, TotalEnergies EP Gabon Société Anonyme would need to produce growth that's similar to the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 15% overall from three years ago. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for a contraction of 0.5% shows the industry is more attractive on an annualised basis regardless.

With this information, it's perhaps strange that TotalEnergies EP Gabon Société Anonyme is trading at a fairly similar P/S in comparison. With revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

TotalEnergies EP Gabon Société Anonyme appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that TotalEnergies EP Gabon Société Anonyme currently trades on a higher than expected P/S since its recent three-year revenues are even worse than the forecasts for a struggling industry. When we see below average revenue, we suspect the share price is at risk of declining, sending the moderate P/S lower. We're also cautious about the company's ability to stay its recent medium-term course and resist even greater pain to its business from the broader industry turmoil. This would place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You always need to take note of risks, for example - TotalEnergies EP Gabon Société Anonyme has 3 warning signs we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.