Aris Mining Corporation (TSE:ARIS) Held Back By Insufficient Growth Even After Shares Climb 26%

Aris Mining Corporation (TSE:ARIS) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 96% in the last year.

In spite of the firm bounce in price, Aris Mining may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.7x, considering almost half of all companies in the Metals and Mining industry in Canada have P/S ratios greater than 4.5x and even P/S higher than 28x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Aris Mining

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

Aris Mining's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so 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 Aris Mining.

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 39%. The latest three year period has also seen an excellent 67% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 32% each year over the next three years. With the industry predicted to deliver 50% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Aris Mining's 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 Key Takeaway

The latest share price surge wasn't enough to lift Aris Mining's P/S close to the industry median. 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 Aris 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Aris Mining you should know about.

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.