Why We're Not Concerned About HighPeak Energy, Inc.'s (NASDAQ:HPK) Share Price

When close to half the companies in the Oil and Gas industry in the United States have price-to-sales ratios (or "P/S") below 1.4x, you may consider HighPeak Energy, Inc. (NASDAQ:HPK) as a stock to potentially avoid with its 2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for HighPeak Energy

What Does HighPeak Energy's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, HighPeak Energy has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, HighPeak Energy would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 210% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 34% during the coming year according to the four analysts following the company. With the rest of the industry predicted to shrink by 9.8%, that would be a fantastic result.

In light of this, it's understandable that HighPeak Energy's P/S sits above the majority of other companies. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader industry going backwards.

The Key Takeaway

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.

As we anticipated, our review of HighPeak Energy's analyst forecasts shows that the company's better revenue forecast compared to a turbulent industry is a significant contributor to its high price-to-sales ratio. At this stage investors feel the potential for a deterioration in revenue is remote enough to justify paying a premium in the form of a high P/S. We still remain cautious about the company's ability to keep swimming against the current of the broader industry turmoil. Assuming the company's outlook remains unchanged, the share price is likely to be supported by prospective buyers.

We don't want to rain on the parade too much, but we did also find 3 warning signs for HighPeak Energy (1 is significant!) that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.