Aeris Resources Limited (ASX:AIS) Stock Catapults 34% Though Its Price And Business Still Lag The Industry

Aeris Resources Limited (ASX:AIS) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 38%.

In spite of the firm bounce in price, Aeris Resources' price-to-sales (or "P/S") ratio of 0.4x might still make it look like a strong buy right now compared to the wider Metals and Mining industry in Australia, where around half of the companies have P/S ratios above 62.5x and even P/S above 318x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Aeris Resources

What Does Aeris Resources' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Aeris Resources' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still 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.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 25% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue growth is heading into negative territory, declining 6.5% per year over the next three years. That's not great when the rest of the industry is expected to grow by 535% per annum.

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. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

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.

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. As other companies in the industry are forecasting revenue growth, Aeris Resources' poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Aeris Resources you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.