Improved Revenues Required Before Burgundy Diamond Mines Limited (ASX:BDM) Shares Find Their Feet

You may think that with a price-to-sales (or "P/S") ratio of 0.3x Burgundy Diamond Mines Limited (ASX:BDM) is definitely a stock worth checking out, seeing as almost half of all the Metals and Mining companies in Australia have P/S ratios greater than 77.6x and even P/S above 457x 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 Burgundy Diamond Mines

How Burgundy Diamond Mines Has Been Performing

Recent times have been advantageous for Burgundy Diamond Mines as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on Burgundy Diamond Mines will help you uncover what's on the horizon.

How Is Burgundy Diamond Mines' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Burgundy Diamond Mines' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an explosive gain to the company's top line. Although, its longer-term performance hasn't been anywhere near as strong with three-year revenue growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the one analyst covering the company suggest revenue growth is heading into negative territory, declining 29% over the next year. That's not great when the rest of the industry is expected to grow by 17%.

With this information, we are not surprised that Burgundy Diamond Mines 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 Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Burgundy Diamond Mines' P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for Burgundy Diamond Mines that we have uncovered.

If you're unsure about the strength of Burgundy Diamond 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.