Why Investors Shouldn't Be Surprised By Aya Gold & Silver Inc.'s (TSE:AYA) 34% Share Price Surge

Aya Gold & Silver Inc. (TSE:AYA) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Following the firm bounce in price, Aya Gold & Silver may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 18.3x, since almost half of all companies in the Metals and Mining industry in Canada have P/S ratios under 5x and even P/S lower than 2x are not unusual. However, the P/S might be quite 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 Aya Gold & Silver

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

Aya Gold & Silver 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. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Aya Gold & Silver's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 123%. The strong recent performance means it was also able to grow revenue by 176% 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 seven analysts covering the company suggest revenue should grow by 111% over the next year. That's shaping up to be materially higher than the 40% growth forecast for the broader industry.

In light of this, it's understandable that Aya Gold & Silver's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has lead to Aya Gold & Silver's P/S soaring as well. 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.

Our look into Aya Gold & Silver shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Aya Gold & Silver with six simple checks on some of these key factors.

If you're unsure about the strength of Aya Gold & Silver's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.