There's Reason For Concern Over Avino Silver & Gold Mines Ltd.'s (TSE:ASM) Massive 29% Price Jump

Despite an already strong run, Avino Silver & Gold Mines Ltd. (TSE:ASM) shares have been powering on, with a gain of 29% in the last thirty days. The last month tops off a massive increase of 272% in the last year.

Since its price has surged higher, given around half the companies in Canada's Metals and Mining industry have price-to-sales ratios (or "P/S") below 3.5x, you may consider Avino Silver & Gold Mines as a stock to avoid entirely with its 7.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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See our latest analysis for Avino Silver & Gold Mines

How Avino Silver & Gold Mines Has Been Performing

With revenue growth that's superior to most other companies of late, Avino Silver & Gold Mines has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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How Is Avino Silver & Gold Mines' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 56% last year. The strong recent performance means it was also able to grow revenue by 226% in total over the last three years. 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 7.1% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 49% each year, 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. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

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

Avino Silver & Gold Mines' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 concluded that Avino Silver & Gold Mines currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 2 warning signs we've spotted with Avino Silver & Gold Mines.

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.