Lacklustre Performance Is Driving Aeris Resources Limited's (ASX:AIS) Low P/S
You may think that with a price-to-sales (or "P/S") ratio of 0.2x Aeris Resources Limited (ASX:AIS) is definitely a stock worth checking out, seeing as almost half of all the Metals and Mining companies in Australia have P/S ratios greater than 95.2x and even P/S above 571x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
Check out our latest analysis for Aeris Resources
What Does Aeris Resources' Recent Performance Look Like?
Aeris Resources could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Keen to find out how analysts think Aeris Resources' future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The Low P/S Ratio?
Aeris Resources' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 58%. The latest three year period has also seen an excellent 169% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Shifting to the future, estimates from the four analysts covering the company suggest revenue growth is heading into negative territory, declining 14% per annum over the next three years. With the industry predicted to deliver 575% growth each year, that's a disappointing outcome.
With this in consideration, we find it intriguing that Aeris Resources' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
What Does Aeris Resources' P/S Mean For Investors?
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.
With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Aeris Resources' P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Aeris Resources, and understanding these should be part of your investment process.
If you're unsure about the strength of Aeris Resources' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
