AIC Mines Limited (ASX:A1M) Not Doing Enough For Some Investors As Its Shares Slump 26%

AIC Mines Limited (ASX:A1M) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. The last month has meant the stock is now only up 3.5% during the last year.

In spite of the heavy fall in price, AIC Mines may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.6x, considering almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 73.8x and even P/S higher than 500x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for AIC Mines

What Does AIC Mines' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, AIC Mines has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on AIC Mines.

How Is AIC Mines' Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like AIC Mines' to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 20% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 71% per year, which is noticeably more attractive.

With this information, we can see why AIC Mines is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does AIC Mines' P/S Mean For Investors?

Having almost fallen off a cliff, AIC Mines' share price has pulled its P/S way down as well. 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.

As expected, our analysis of AIC Mines' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

It is also worth noting that we have found 3 warning signs for AIC Mines (1 shouldn't be ignored!) that you need to take into consideration.

If you're unsure about the strength of AIC Mines' 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com