Ora Banda Mining Limited (ASX:OBM) Stock Catapults 28% Though Its Price And Business Still Lag The Industry

Ora Banda Mining Limited (ASX:OBM) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. The annual gain comes to 269% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Ora Banda Mining may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 7.3x, considering almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 54.2x and even P/S higher than 300x 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 Ora Banda Mining

How Ora Banda Mining Has Been Performing

Ora Banda Mining could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. 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 Ora Banda Mining's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Ora Banda Mining's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 58% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 42% each year over the next three years. That's shaping up to be materially lower than the 562% per year growth forecast for the broader industry.

With this in consideration, its clear as to why Ora Banda Mining's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Even after such a strong price move, Ora Banda Mining's 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 Ora Banda Mining's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Ora Banda Mining that you should be aware of.

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.