It's Down 34% But Elevra Lithium Limited (ASX:SYA) Could Be Riskier Than It Looks

Elevra Lithium Limited (ASX:SYA) shares have retraced a considerable 34% in the last month, reversing a fair amount of their solid recent performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 27% share price drop.

Since its price has dipped substantially, Elevra Lithium may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.1x, considering almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 71.9x and even P/S higher than 499x 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 Elevra Lithium

What Does Elevra Lithium's Recent Performance Look Like?

Elevra Lithium 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.

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How Is Elevra Lithium's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 20% each year as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 17% per annum, which is noticeably less attractive.

With this in consideration, we find it intriguing that Elevra Lithium's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Elevra Lithium's P/S

Elevra Lithium's P/S looks about as weak as its stock price lately. 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.

Elevra Lithium's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You always need to take note of risks, for example - Elevra Lithium has 1 warning sign we think 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.