Investors Still Waiting For A Pull Back In GoGold Resources Inc. (TSE:GGD)

With a price-to-sales (or "P/S") ratio of 12.3x GoGold Resources Inc. (TSE:GGD) may be sending very bearish signals at the moment, given that almost half of all the Metals and Mining companies in Canada have P/S ratios under 3x and even P/S lower than 1x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for GoGold Resources

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

GoGold Resources 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.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For GoGold Resources?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like GoGold Resources' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.2%. The last three years don't look nice either as the company has shrunk revenue by 39% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 37% over the next year. That's shaping up to be materially higher than the 18% growth forecast for the broader industry.

With this in mind, it's not hard to understand why GoGold Resources' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On GoGold Resources' P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that GoGold Resources 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for GoGold Resources with six simple checks on some of these key factors.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com