Revenues Not Telling The Story For GoGold Resources Inc. (TSE:GGD) After Shares Rise 31%

GoGold Resources Inc. (TSE:GGD) shares have had a really impressive month, gaining 31% after a shaky period beforehand. The last month tops off a massive increase of 164% in the last year.

Following the firm bounce in price, GoGold Resources' price-to-sales (or "P/S") ratio of 12.8x might make it look like a strong sell right now compared to other companies in the Metals and Mining industry in Canada, where around half of the companies have P/S ratios below 7.6x and even P/S below 2x are quite common. 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.

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View our latest analysis for GoGold Resources

What Does GoGold Resources' Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, GoGold Resources has been doing very well. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Although there are no analyst estimates available for GoGold Resources, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is GoGold Resources' Revenue Growth Trending?

In order to justify its P/S ratio, GoGold Resources would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 99% gain to the company's top line. Pleasingly, revenue has also lifted 101% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 52% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it worrying that GoGold Resources' P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On GoGold Resources' P/S

GoGold Resources' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Our examination of GoGold Resources revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. If recent medium-term revenue trends continue, it will place 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 2 warning signs for GoGold Resources (of which 1 is a bit concerning!) you should know about.

If these risks are making you reconsider your opinion on GoGold Resources, 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.