Genel Energy plc's (LON:GENL) P/S Is Still On The Mark Following 28% Share Price Bounce

Genel Energy plc (LON:GENL) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 32% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Genel Energy is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.3x, considering almost half the companies in the United Kingdom's Oil and Gas industry have P/S ratios below 1.5x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Genel Energy

How Has Genel Energy Performed Recently?

Genel Energy's negative revenue growth of late has neither been better nor worse than most other companies. Perhaps the market is expecting the company to reverse its fortunes and beat out a struggling industry in the future, elevating the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Genel Energy's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 4.7% decrease to the company's top line. As a result, revenue from three years ago have also fallen 78% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 17% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 8.9% per year, which is noticeably less attractive.

With this information, we can see why Genel Energy is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Genel Energy's P/S?

The large bounce in Genel Energy's shares has lifted the company's P/S handsomely. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Genel 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Genel Energy that you should be aware of.

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.