Further Upside For Jadestone Energy plc (LON:JSE) Shares Could Introduce Price Risks After 26% Bounce

Despite an already strong run, Jadestone Energy plc (LON:JSE) shares have been powering on, with a gain of 26% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 35% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Jadestone Energy's P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Oil and Gas industry in the United Kingdom is also close to 1.2x. 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.

See our latest analysis for Jadestone Energy

How Has Jadestone Energy Performed Recently?

With revenue that's retreating more than the industry's average of late, Jadestone Energy has been very sluggish. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

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

How Is Jadestone Energy's Revenue Growth Trending?

In order to justify its P/S ratio, Jadestone Energy would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 27%. Still, the latest three year period has seen an excellent 42% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 21% per annum during the coming three years according to the four analysts following the company. With the rest of the industry predicted to shrink by 0.2% per annum, that would be a fantastic result.

With this information, we find it odd that Jadestone Energy is trading at a fairly similar P/S to the industry. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

The Bottom Line On Jadestone Energy's P/S

Jadestone Energy 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.

Our examination of Jadestone Energy's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. Given the glowing revenue forecasts, we can only assume potential risks are what might be capping the P/S ratio at its current levels. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Before you take the next step, you should know about the 1 warning sign for Jadestone Energy that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.