Despite an already strong run, Vistra Corp. (NYSE:VST) shares have been powering on, with a gain of 34% in the last thirty days. The last month tops off a massive increase of 278% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Vistra's P/S ratio of 2.4x, since the median price-to-sales (or "P/S") ratio for the Renewable Energy industry in the United States is also close to 2.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Vistra Has Been Performing

With revenue that's retreating more than the industry's average of late, Vistra has been very sluggish. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. You'd much rather the company improve its revenue if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Vistra's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 11%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 14% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should generate growth of 7.9% per annum as estimated by the eight analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 6.9% per annum, which is not materially different.

With this information, we can see why Vistra is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Vistra's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 Vistra's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Renewable Energy 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for Vistra you should be aware of.

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).

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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.