Investors Aren't Buying Fortuna Mining Corp.'s (TSE:FVI) Revenues

You may think that with a price-to-sales (or "P/S") ratio of 1.8x Fortuna Mining Corp. (TSE:FVI) is a stock worth checking out, seeing as almost half of all the Metals and Mining companies in Canada have P/S ratios greater than 3.5x and even P/S higher than 25x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Fortuna Mining

What Does Fortuna Mining's Recent Performance Look Like?

Recent revenue growth for Fortuna Mining has been in line with the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

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Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Fortuna Mining's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 33% gain to the company's top line. The latest three year period has also seen an excellent 73% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 19% as estimated by the dual analysts watching the company. Meanwhile, the broader industry is forecast to expand by 65%, which paints a poor picture.

In light of this, it's understandable that Fortuna Mining's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Fortuna Mining's P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

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

If these risks are making you reconsider your opinion on Fortuna Mining, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.