Canfor Corporation's (TSE:CFP) P/S Still Appears To Be Reasonable
It's not a stretch to say that Canfor Corporation's (TSE:CFP) price-to-sales (or "P/S") ratio of 0.3x seems quite "middle-of-the-road" for Forestry companies in Canada, seeing as it matches the P/S ratio of the wider industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
View our latest analysis for Canfor
What Does Canfor's P/S Mean For Shareholders?
Recent times have been pleasing for Canfor as its revenue has risen in spite of the industry's average revenue going into reverse. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic 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 Canfor.Is There Some Revenue Growth Forecasted For Canfor?
In order to justify its P/S ratio, Canfor would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. This isn't what shareholders were looking for as it means they've been left with a 30% decline in revenue over the last three years in total. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 5.8% each year as estimated by the five analysts watching the company. With the industry predicted to deliver 3.8% growth per year, the company is positioned for a comparable revenue result.
With this information, we can see why Canfor is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.
The Bottom Line On Canfor's P/S
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
A Canfor's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Forestry industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.
A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Canfor with six simple checks will allow you to discover any risks that could be an issue.
If you're unsure about the strength of Canfor's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.