Investors Aren't Entirely Convinced By Vertex Resource Group Ltd.'s (CVE:VTX) Revenues

Simply Wall St · 10/18 11:34

You may think that with a price-to-sales (or "P/S") ratio of 0.1x Vertex Resource Group Ltd. (CVE:VTX) is a stock worth checking out, seeing as almost half of all the Commercial Services companies in Canada have P/S ratios greater than 1.1x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Vertex Resource Group

ps-multiple-vs-industry
TSXV:VTX Price to Sales Ratio vs Industry October 18th 2024

What Does Vertex Resource Group's Recent Performance Look Like?

Vertex Resource Group 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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Vertex Resource Group.

How Is Vertex Resource Group's Revenue Growth Trending?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period has seen an excellent 73% overall rise in revenue, in spite of its uninspiring short-term performance. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Shifting to the future, estimates from the only analyst covering the company suggest revenue growth will show minor resilience over the next year growing only by 2.5%. While this isn't a particularly impressive figure, it should be noted that the the industry is expected to decline by 2.7%.

In light of this, it's quite peculiar that Vertex Resource Group's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the contrarian forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Vertex Resource Group's P/S?

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.

Our examination of Vertex Resource Group's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't contributing to its P/S anywhere near as much as we would have predicted. We believe there could be some underlying risks that are keeping the P/S modest in the context of above-average revenue growth. One major risk is whether its revenue trajectory can keep outperforming under these tough industry conditions. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Vertex Resource Group that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).