Improved Revenues Required Before Genesis Minerals Limited (ASX:GMD) Stock's 29% Jump Looks Justified

Despite an already strong run, Genesis Minerals Limited (ASX:GMD) shares have been powering on, with a gain of 29% in the last thirty days. The annual gain comes to 167% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Genesis Minerals may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 9.6x, since almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 57.4x and even P/S higher than 361x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Genesis Minerals

How Has Genesis Minerals Performed Recently?

Recent times haven't been great for Genesis Minerals as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. 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 Genesis Minerals' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Genesis Minerals?

In order to justify its P/S ratio, Genesis Minerals would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered an exceptional 125% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 32% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 96% each year, which is noticeably more attractive.

With this in consideration, its clear as to why Genesis Minerals' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Genesis Minerals' P/S

Genesis Minerals' recent share price jump still sees fails to bring its P/S alongside the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Genesis Minerals' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Genesis Minerals with six simple checks on some of these key factors.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.