Cadogan Energy Solutions PLC (LON:CAD) Soars 45% But It's A Story Of Risk Vs Reward

Despite an already strong run, Cadogan Energy Solutions PLC (LON:CAD) shares have been powering on, with a gain of 45% in the last thirty days. The last month tops off a massive increase of 116% in the last year.

Although its price has surged higher, it's still not a stretch to say that Cadogan Energy Solutions' price-to-sales (or "P/S") ratio of 1.8x right now seems quite "middle-of-the-road" compared to the Oil and Gas industry in the United Kingdom, where the median P/S ratio is around 1.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Cadogan Energy Solutions

How Cadogan Energy Solutions Has Been Performing

Recent times have been quite advantageous for Cadogan Energy Solutions as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. 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.

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

How Is Cadogan Energy Solutions' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Cadogan Energy Solutions' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 61%. Revenue has also lifted 21% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 1.9% shows it's noticeably more attractive.

With this information, we find it interesting that Cadogan Energy Solutions is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Cadogan Energy Solutions' P/S

Cadogan Energy Solutions' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We didn't quite envision Cadogan Energy Solutions' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Before you take the next step, you should know about the 3 warning signs for Cadogan Energy Solutions (1 is a bit unpleasant!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.