Endeavour Silver Corp.'s (TSE:EDR) 48% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, Endeavour Silver Corp. (TSE:EDR) shares have been powering on, with a gain of 48% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

Following the firm bounce in price, given close to half the companies operating in Canada's Metals and Mining industry have price-to-sales ratios (or "P/S") below 3x, you may consider Endeavour Silver as a stock to potentially avoid with its 4.6x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Endeavour Silver

How Endeavour Silver Has Been Performing

Recent times haven't been great for Endeavour Silver as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Endeavour Silver's future stacks up against the industry? In that case, our free report is a great place to start.

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 solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a decent 2.8% gain to the company's revenues. Pleasingly, revenue has also lifted 42% 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.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 19% over the next year. Meanwhile, the rest of the industry is forecast to expand by 18%, which is not materially different.

With this information, we find it interesting that Endeavour Silver is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What We Can Learn From Endeavour Silver's P/S?

Endeavour Silver's P/S is on the rise since its shares have risen strongly. 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 Endeavour Silver's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Before you take the next step, you should know about the 1 warning sign for Endeavour Silver that we have uncovered.

If you're unsure about the strength of Endeavour 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.