First Majestic Silver Corp.'s (TSE:FR) Shareholders Might Be Looking For Exit

First Majestic Silver Corp.'s (TSE:FR) price-to-sales (or "P/S") ratio of 3x may not look like an appealing investment opportunity when you consider close to half the companies in the Metals and Mining industry in Canada have P/S ratios below 2.2x. 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.

View our latest analysis for First Majestic Silver

What Does First Majestic Silver's P/S Mean For Shareholders?

First Majestic Silver could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. 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 First Majestic Silver.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as First Majestic Silver's is when the company's growth is on track to outshine the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 70% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 4.9% as estimated by the two analysts watching the company. Meanwhile, the broader industry is forecast to expand by 16%, which paints a poor picture.

With this information, we find it concerning that First Majestic Silver is trading at a P/S higher than the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh heavily on the share price eventually.

The Bottom Line On First Majestic Silver's P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

For a company with revenues that are set to decline in the context of a growing industry, First Majestic Silver's P/S is much higher than we would've anticipated. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about this 1 warning sign we've spotted with First Majestic Silver.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.