The Price Is Right For Aya Gold & Silver Inc. (TSE:AYA) Even After Diving 33%

Aya Gold & Silver Inc. (TSE:AYA) shares have had a horrible month, losing 33% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 49%, which is great even in a bull market.

In spite of the heavy fall in price, given around half the companies in Canada's Metals and Mining industry have price-to-sales ratios (or "P/S") below 2.8x, you may still consider Aya Gold & Silver as a stock to avoid entirely with its 28.9x 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.

Check out our latest analysis for Aya Gold & Silver

How Aya Gold & Silver Has Been Performing

While the industry has experienced revenue growth lately, Aya Gold & Silver's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. 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 Aya Gold & Silver.

Do Revenue Forecasts Match The High P/S Ratio?

Aya Gold & Silver's 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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.4%. Regardless, revenue has managed to lift by a handy 14% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 254% as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 24% growth forecast for the broader industry.

With this information, we can see why Aya Gold & Silver is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Aya Gold & Silver's P/S Mean For Investors?

A significant share price dive has done very little to deflate Aya Gold & Silver's very lofty P/S. 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.

As we suspected, our examination of Aya Gold & Silver's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Aya Gold & Silver (1 doesn't sit too well with us!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.