OPAL Fuels Inc. (NASDAQ:OPAL) Soars 26% But It's A Story Of Risk Vs Reward
OPAL Fuels Inc. (NASDAQ:OPAL) shareholders have had their patience rewarded with a 26% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 28% over that time.
In spite of the firm bounce in price, OPAL Fuels' price-to-sales (or "P/S") ratio of 0.2x might still make it look like a buy right now compared to the Oil and Gas industry in the United States, where around half of the companies have P/S ratios above 1.6x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
Check out our latest analysis for OPAL Fuels
How OPAL Fuels Has Been Performing
OPAL Fuels 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 OPAL Fuels.How Is OPAL Fuels' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as OPAL Fuels' is when the company's growth is on track to lag the industry.
Retrospectively, the last year delivered a decent 7.3% gain to the company's revenues. The latest three year period has also seen an excellent 43% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.
Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 14% per annum over the next three years. With the industry only predicted to deliver 3.7% per annum, the company is positioned for a stronger revenue result.
With this in consideration, we find it intriguing that OPAL Fuels' P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Final Word
Despite OPAL Fuels' share price climbing recently, its P/S still lags most other companies. 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.
A look at OPAL Fuels' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
And what about other risks? Every company has them, and we've spotted 3 warning signs for OPAL Fuels (of which 1 is a bit unpleasant!) 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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