Vulcan Energy Resources Limited's (ASX:VUL) Shares Bounce 32% But Its Business Still Trails The Industry

Simply Wall St · 10/16 23:06

Vulcan Energy Resources Limited (ASX:VUL) shares have had a really impressive month, gaining 32% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 86% in the last year.

Even after such a large jump in price, Vulcan Energy Resources may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 20.3x, considering almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 64.1x and even P/S higher than 292x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Vulcan Energy Resources

ps-multiple-vs-industry
ASX:VUL Price to Sales Ratio vs Industry October 16th 2024

How Has Vulcan Energy Resources Performed Recently?

Vulcan Energy Resources could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Vulcan Energy Resources will help you uncover what's on the horizon.

How Is Vulcan Energy Resources' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Vulcan Energy Resources' is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 59% last year. The strong recent performance means it was also able to grow revenue by 276% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 117% per annum during the coming three years according to the three analysts following the company. With the industry predicted to deliver 561% growth per annum, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Vulcan Energy Resources' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Vulcan Energy Resources' P/S?

Shares in Vulcan Energy Resources have risen appreciably however, its P/S is still subdued. 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.

As we suspected, our examination of Vulcan Energy Resources' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Vulcan Energy Resources is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).