Revenues Tell The Story For Comstock Resources, Inc. (NYSE:CRK) As Its Stock Soars 26%

Comstock Resources, Inc. (NYSE:CRK) shareholders have had their patience rewarded with a 26% share price jump in the last month. The annual gain comes to 129% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given around half the companies in the United States' Oil and Gas industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider Comstock Resources as a stock to avoid entirely with its 5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

We've discovered 1 warning sign about Comstock Resources. View them for free.

See our latest analysis for Comstock Resources

What Does Comstock Resources' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Comstock Resources has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think Comstock Resources' 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 Comstock Resources?

In order to justify its P/S ratio, Comstock Resources would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. This isn't what shareholders were looking for as it means they've been left with a 31% decline in revenue over the last three years in total. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 32% during the coming year according to the eleven analysts following the company. With the industry only predicted to deliver 6.5%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Comstock Resources' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Comstock Resources' P/S

Comstock Resources' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

We've established that Comstock Resources maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Oil and Gas industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Comstock Resources 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.