The Price Is Right For Brookfield Renewable Corporation (NYSE:BEPC)

When close to half the companies in the Renewable Energy industry in the United States have price-to-sales ratios (or "P/S") below 2.3x, you may consider Brookfield Renewable Corporation (NYSE:BEPC) as a stock to potentially avoid with its 3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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View our latest analysis for Brookfield Renewable

What Does Brookfield Renewable's Recent Performance Look Like?

Brookfield Renewable could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. However, if this isn't the case, investors might get caught out paying too much for the stock.

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Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.8%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 10.0% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 21% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 9.9% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why Brookfield Renewable's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Brookfield Renewable's P/S

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 suspected, our examination of Brookfield Renewable'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.

Before you take the next step, you should know about the 2 warning signs for Brookfield Renewable (1 is a bit unpleasant!) that we have uncovered.

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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.