Why Investors Shouldn't Be Surprised By CECO Environmental Corp.'s (NASDAQ:CECO) 26% Share Price Surge

The CECO Environmental Corp. (NASDAQ:CECO) share price has done very well over the last month, posting an excellent gain of 26%. The annual gain comes to 122% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, it's still not a stretch to say that CECO Environmental's price-to-sales (or "P/S") ratio of 1.8x right now seems quite "middle-of-the-road" compared to the Commercial Services industry in the United States, where the median P/S ratio is around 1.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for CECO Environmental

What Does CECO Environmental's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, CECO Environmental has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like CECO Environmental's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. Pleasingly, revenue has also lifted 82% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 9.3% during the coming year according to the six analysts following the company. With the industry predicted to deliver 9.9% growth , the company is positioned for a comparable revenue result.

With this in mind, it makes sense that CECO Environmental's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On CECO Environmental's P/S

Its shares have lifted substantially and now CECO Environmental's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at CECO Environmental's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

Plus, you should also learn about these 2 warning signs we've spotted with CECO Environmental.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com