Cadiz Inc.'s (NASDAQ:CDZI) P/S Is Still On The Mark Following 38% Share Price Bounce

Cadiz Inc. (NASDAQ:CDZI) shares have continued their recent momentum with a 38% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 75%.

After such a large jump in price, given around half the companies in the United States' Water Utilities industry have price-to-sales ratios (or "P/S") below 4.9x, you may consider Cadiz as a stock to avoid entirely with its 28.7x 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.

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See our latest analysis for Cadiz

How Cadiz Has Been Performing

Recent times have been advantageous for Cadiz as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Cadiz's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Cadiz's to be considered reasonable.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 65% each year over the next three years. That's shaping up to be materially higher than the 6.9% per year growth forecast for the broader industry.

In light of this, it's understandable that Cadiz'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.

The Bottom Line On Cadiz's P/S

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

As we suspected, our examination of Cadiz'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.

You need to take note of risks, for example - Cadiz has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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.