Investors Appear Satisfied With Pacific Radiance Ltd.'s (SGX:RXS) Prospects As Shares Rocket 33%

Pacific Radiance Ltd. (SGX:RXS) shares have continued their recent momentum with a 33% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 18% is also fairly reasonable.

After such a large jump in price, given close to half the companies operating in Singapore's Energy Services industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider Pacific Radiance as a stock to potentially avoid with its 1.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Pacific Radiance

What Does Pacific Radiance's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Pacific Radiance has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Pacific Radiance's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Pacific Radiance?

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

Retrospectively, the last year delivered a decent 10% gain to the company's revenues. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should generate growth of 16% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 12%, which is noticeably less attractive.

In light of this, it's understandable that Pacific Radiance's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Pacific Radiance's P/S Mean For Investors?

Pacific Radiance shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

As we suspected, our examination of Pacific Radiance's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 6 warning signs for Pacific Radiance (3 are potentially serious!) 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.