Regis Resources Limited (ASX:RRL) Shares Fly 35% But Investors Aren't Buying For Growth

Regis Resources Limited (ASX:RRL) shareholders would be excited to see that the share price has had a great month, posting a 35% gain and recovering from prior weakness. The last month tops off a massive increase of 172% in the last year.

Although its price has surged higher, Regis Resources may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.5x, considering almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 73.4x and even P/S higher than 630x 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.

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Check out our latest analysis for Regis Resources

How Regis Resources Has Been Performing

Regis Resources 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 this is the case, then existing shareholders will probably struggle to get excited 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 Regis Resources.

Is There Any Revenue Growth Forecasted For Regis Resources?

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

Taking a look back first, we see that the company grew revenue by an impressive 30% last year. The latest three year period has also seen an excellent 62% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 2.6% each year during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 18% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Regis Resources' 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 Bottom Line On Regis Resources' P/S

Even after such a strong price move, Regis Resources' P/S still trails the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Regis Resources' 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Regis Resources you should know about.

If you're unsure about the strength of Regis Resources' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.