GoGold Resources Inc.'s (TSE:GGD) 27% Price Boost Is Out Of Tune With Revenues

GoGold Resources Inc. (TSE:GGD) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 39%.

After such a large jump in price, you could be forgiven for thinking GoGold Resources is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 9.4x, considering almost half the companies in Canada's Metals and Mining industry have P/S ratios below 3.4x. 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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View our latest analysis for GoGold Resources

How GoGold Resources Has Been Performing

GoGold Resources certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For GoGold Resources?

GoGold Resources' 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 an exceptional 71% gain to the company's top line. 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.

Looking ahead now, revenue is anticipated to climb by 38% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 45%, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that GoGold Resources' P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What Does GoGold Resources' P/S Mean For Investors?

Shares in GoGold Resources have seen a strong upwards swing lately, which has really helped boost its P/S figure. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've concluded that GoGold Resources currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for GoGold Resources you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.