Energy Fuels Inc. (TSE:EFR) looks right on target with a 31% price jump

Energy Fuels Inc. (TSE:EFR) Shares have continued their recent momentum with a 31% gain in the last month alone. However, last month’s gains weren’t enough to reassure shareholders, with the share price still down 2.2% over the last twelve months.

Given that about half of the companies in the Canadian oil and gas industry have price-to-sales (or “P/S”) ratios below 2.1x, you could consider Energy Fuels as a stock after such a large price jump The one you should consider avoiding entirely is its 37x P/S ratio. Still, we’d have to dig a little deeper to determine whether there’s a rational basis for the sharply elevated P/S.

Check out our latest energy fuels analysis

What does Energy Fuels’ P/E ratio mean for shareholders?

With revenue growth lagging behind most other companies recently, Energy Fuels has been relatively sluggish. One possibility is that the P/E ratio is high because investors believe this weak sales performance will improve significantly. If not, existing shareholders may be very concerned about the sustainability of the share price.

If you want to see what analysts are predicting for the future, you should check out our free Energy Fuels Report.

How is Energy Fuels’ sales growth developing?

There is an inherent assumption that for P/S ratios like Energy Fuels’s to be considered reasonable, a company should outperform the industry by a wide margin.

If we review the last year of revenue growth, the company posted a notable increase of 2.7%. The last three-year period has seen an incredible increase in overall sales, although performance over the last twelve months has been mediocre. Accordingly, shareholders would have been excited by these medium-term sales growth rates.

Sales are expected to grow 103% per year over the next three years, according to the three analysts who cover the company. The rest of the industry, on the other hand, is only expected to grow by 1.2% per year, which is noticeably less attractive.

With this in mind, it’s not hard to understand why Energy Fuels’ P/E ratio is high compared to its industry peers. Apparently shareholders aren’t interested in selling off something that might be aimed at a more prosperous future.

The conclusion on the P/E ratio of Energy Fuels

Energy Fuels’ P/E ratio has risen nicely over the last month thanks to a significant increase in its share price. It is argued that the price-to-sales ratio is a poorer indicator of value in certain industries, but can be a powerful indicator of business sentiment.

Our look at Energy Fuels shows that the P/E ratio remains high due to strong future sales. At this point, investors believe the potential for earnings deterioration to be quite low, justifying the elevated P/E ratio. Under these circumstances, it’s hard to imagine the share price falling sharply in the near future.

And what about other risks? Every company has them, and we discovered them 1 Energy fuel warning sign you should know that.

If companies with a history of solid earnings growth are right for youmaybe you would like to see this free Collection of other companies with strong earnings growth and low P/E ratios.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.