Endeavour Silver Corp. (TSE:EDR) Stocks Shoot Up 36% But Its P/S Still Looks Reasonable

Despite an already strong run, Endeavour Silver Corp. (TSE:EDR) shares have been powering on, with a gain of 36% in the last thirty days. The annual gain comes to 121% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Endeavour Silver may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 9.2x, when you consider almost half of the companies in the Metals and Mining industry in Canada have P/S ratios under 5.5x and even P/S lower than 2x aren't out of the ordinary. 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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See our latest analysis for Endeavour Silver

How Endeavour Silver Has Been Performing

With revenue growth that's inferior to most other companies of late, Endeavour Silver has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Endeavour Silver will help you uncover what's on the horizon.

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

Endeavour 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.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Pleasingly, revenue has also lifted 44% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 42% each year during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 22% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Endeavour Silver's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Endeavour Silver have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 established that Endeavour Silver maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Metals and Mining industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Endeavour Silver is showing 1 warning sign in our investment analysis, you should know about.

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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.