Sayona Mining Limited's (ASX:SYA) Price Is Right But Growth Is Lacking After Shares Rocket 29%

Sayona Mining Limited (ASX:SYA) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 27% over that time.

In spite of the firm bounce in price, Sayona Mining's price-to-sales (or "P/S") ratio of 1.2x 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 65.5x and even P/S above 504x 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.

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See our latest analysis for Sayona Mining

What Does Sayona Mining's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Sayona Mining has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. 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.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

Retrospectively, the last year delivered an exceptional 73% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 88% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 0.6% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 123%, which is noticeably more attractive.

With this in consideration, its clear as to why Sayona Mining's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Sayona Mining's P/S

Shares in Sayona Mining have risen appreciably however, its P/S is still subdued. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Sayona Mining maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Sayona Mining that you should be aware of.

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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.