Risks To Shareholder Returns Are Elevated At These Prices For IMPACT Silver Corp. (CVE:IPT)
When you see that almost half of the companies in the Metals and Mining industry in Canada have price-to-sales ratios (or "P/S") below 2.8x, IMPACT Silver Corp. (CVE:IPT) looks to be giving off some sell signals with its 3.9x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for IMPACT Silver
How Has IMPACT Silver Performed Recently?
As an illustration, revenue has deteriorated at IMPACT Silver over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on IMPACT Silver will help you shine a light on its historical performance.
How Is IMPACT Silver's Revenue Growth Trending?
In order to justify its P/S ratio, IMPACT Silver would need to produce impressive growth in excess of the industry.
Retrospectively, the last year delivered a frustrating 7.7% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 23% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 16% shows it's noticeably less attractive.
In light of this, it's alarming that IMPACT Silver's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.
The Key Takeaway
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our examination of IMPACT Silver revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.
It is also worth noting that we have found 2 warning signs for IMPACT Silver that you need to take into consideration.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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.
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