Aeris Resources Limited (ASX:AIS) Stock Catapults 32% Though Its Price And Business Still Lag The Industry

Aeris Resources Limited (ASX:AIS) shareholders are no doubt pleased to see that the share price has bounced 32% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 74% share price decline over the last year.

Even after such a large jump in price, Aeris Resources may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 98.4x and even P/S higher than 553x aren't out of the ordinary. 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 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 you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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.

How Is Aeris Resources' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 58% last year. The strong recent performance means it was also able to grow revenue by 169% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 14% per year as estimated by the four analysts watching the company. With the industry predicted to deliver 576% growth per year, that's a disappointing outcome.

With this information, we are not surprised that Aeris Resources is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Aeris Resources' P/S

Even after such a strong price move, Aeris Resources' P/S still trails the rest of the industry. 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.

As we suspected, our examination of Aeris Resources' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Aeris Resources' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Before you settle on your opinion, we've discovered 3 warning signs for Aeris Resources that you should be aware of.

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).

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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.