Lucapa Diamond Company Limited's (ASX:LOM) Business And Shares Still Trailing The Industry
With a price-to-sales (or "P/S") ratio of 1.3x Lucapa Diamond Company Limited (ASX:LOM) may be sending very bullish signals at the moment, given that almost half of all the Metals and Mining companies in Australia have P/S ratios greater than 98.5x and even P/S higher than 544x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.
Check out our latest analysis for Lucapa Diamond
What Does Lucapa Diamond's Recent Performance Look Like?
Lucapa Diamond has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Lucapa Diamond will help you shine a light on its historical performance.
Is There Any Revenue Growth Forecasted For Lucapa Diamond?
Lucapa Diamond's 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.
Taking a look back first, we see that the company managed to grow revenues by a handy 8.5% last year. This was backed up an excellent period prior to see revenue up by 84% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.
This is in contrast to the rest of the industry, which is expected to grow by 84% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this in consideration, it's easy to understand why Lucapa Diamond's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
The Bottom Line On Lucapa Diamond's P/S
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.
Our examination of Lucapa Diamond confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.
It is also worth noting that we have found 2 warning signs for Lucapa Diamond that you need to take into consideration.
If you're unsure about the strength of Lucapa Diamond's 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.
