Pantoro Limited (ASX:PNR) Surges 27% Yet Its Low P/S Is No Reason For Excitement

Pantoro Limited (ASX:PNR) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 180% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Pantoro may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 3.9x, considering almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 53.7x and even P/S higher than 300x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Pantoro

How Has Pantoro Performed Recently?

Pantoro certainly has been doing a good job lately as it's been growing revenue more 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pantoro.

Do Revenue Forecasts Match The Low P/S Ratio?

Pantoro's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 133%. The strong recent performance means it was also able to grow revenue by 161% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 192% per annum growth forecast for the broader industry.

With this information, we can see why Pantoro is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Pantoro's P/S Mean For Investors?

Pantoro's recent share price jump still sees fails to bring its P/S alongside the industry median. 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 Pantoro's 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. The company will need a change of fortune to justify the P/S rising higher in the future.

It is also worth noting that we have found 1 warning sign for Pantoro that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.