Optimistic Investors Push Avino Silver & Gold Mines Ltd. (TSE:ASM) Shares Up 47% But Growth Is Lacking

Avino Silver & Gold Mines Ltd. (TSE:ASM) shares have continued their recent momentum with a 47% gain in the last month alone. The annual gain comes to 197% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given close to half the companies operating in Canada's Metals and Mining industry have price-to-sales ratios (or "P/S") below 3.2x, you may consider Avino Silver & Gold Mines as a stock to potentially avoid with its 4.7x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Avino Silver & Gold Mines

What Does Avino Silver & Gold Mines' P/S Mean For Shareholders?

Avino Silver & Gold Mines certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Avino Silver & Gold Mines.

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

Avino Silver & Gold Mines' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered an exceptional 51% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 11% per year as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 50% per annum, which is noticeably more attractive.

With this information, we find it concerning that Avino Silver & Gold Mines is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

Avino Silver & Gold Mines shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Avino Silver & Gold Mines, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Avino Silver & Gold Mines with six simple checks will allow you to discover any risks that could be an issue.

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.