Even With A 31% Surge, Cautious Investors Are Not Rewarding Pantoro Limited's (ASX:PNR) Performance Completely

Pantoro Limited (ASX:PNR) shares have had a really impressive month, gaining 31% after a shaky period beforehand. The last month tops off a massive increase of 140% in the last year.

Even after such a large jump in price, Pantoro's price-to-sales (or "P/S") ratio of 5.1x 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 70.1x and even P/S above 445x are quite common. 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 Pantoro

What Does Pantoro's Recent Performance Look Like?

Recent times haven't been great for Pantoro 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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Pantoro's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Pantoro's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 90%. The strong recent performance means it was also able to grow revenue by 67% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 92% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 41%, which is noticeably less attractive.

With this information, we find it odd that Pantoro is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Pantoro's P/S

Shares in Pantoro have risen appreciably however, its P/S is still subdued. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

A look at Pantoro's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Pantoro that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.