There's Reason For Concern Over China Gold International Resources Corp. Ltd.'s (TSE:CGG) Massive 27% Price Jump

China Gold International Resources Corp. Ltd. (TSE:CGG) shares have continued their recent momentum with a 27% gain in the last month alone. This latest share price bounce rounds out a remarkable 332% gain over the last twelve months.

Although its price has surged higher, it's still not a stretch to say that China Gold International Resources' price-to-sales (or "P/S") ratio of 6.9x right now seems quite "middle-of-the-road" compared to the Metals and Mining industry in Canada, where the median P/S ratio is around 6.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Check out our latest analysis for China Gold International Resources

How Has China Gold International Resources Performed Recently?

Recent times have been advantageous for China Gold International Resources as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Gold International Resources.

Is There Some Revenue Growth Forecasted For China Gold International Resources?

The only time you'd be comfortable seeing a P/S like China Gold International Resources' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 128%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 0.4% over the next year. That's shaping up to be materially lower than the 51% growth forecast for the broader industry.

In light of this, it's curious that China Gold International Resources' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From China Gold International Resources' P/S?

Its shares have lifted substantially and now China Gold International Resources' P/S is back within range of the industry median. 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.

Given that China Gold International Resources' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for China Gold International Resources with six simple checks will allow you to discover any risks that could be an issue.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.