Stock Analysis

Pilbara Minerals Limited (ASX:PLS) Not Doing Enough For Some Investors As Its Shares Slump 25%

ASX:PLS
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Pilbara Minerals Limited (ASX:PLS) shares have had a horrible month, losing 25% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 39% share price drop.

Even after such a large drop in price, Pilbara Minerals may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 5.4x, since almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 60x and even P/S higher than 272x are not unusual. 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.

See our latest analysis for Pilbara Minerals

ps-multiple-vs-industry
ASX:PLS Price to Sales Ratio vs Industry December 7th 2024

How Has Pilbara Minerals Performed Recently?

Pilbara Minerals hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Pilbara Minerals' Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 69%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Turning to the outlook, the next three years should generate growth of 8.3% per annum as estimated by the analysts watching the company. With the industry predicted to deliver 552% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Pilbara Minerals' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Shares in Pilbara Minerals have plummeted and its P/S has followed suit. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As expected, our analysis of Pilbara Minerals' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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. The company will need a change of fortune to justify the P/S rising higher in the future.

Having said that, be aware Pilbara Minerals is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

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.