Improved Revenues Required Before Teekay Corporation (NYSE:TK) Stock's 26% Jump Looks Justified

Teekay Corporation (NYSE:TK) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 85%.

Although its price has surged higher, when close to half the companies operating in the United States' Oil and Gas industry have price-to-sales ratios (or "P/S") above 1.7x, you may still consider Teekay as an enticing stock to check out with its 0.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Teekay

How Has Teekay Performed Recently?

Teekay certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. 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 out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Teekay's earnings, revenue and cash flow.

How Is Teekay's Revenue Growth Trending?

In order to justify its P/S ratio, Teekay would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 53% gain to the company's top line. Still, revenue has fallen 25% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 0.9% shows it's an unpleasant look.

With this information, we are not surprised that Teekay is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On Teekay's P/S

The latest share price surge wasn't enough to lift Teekay's P/S close to the industry median. 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.

Our examination of Teekay confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Teekay with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Teekay, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.