It's A Story Of Risk Vs Reward With IAMGOLD Corporation (TSE:IMG)

With a price-to-sales (or "P/S") ratio of 2.2x IAMGOLD Corporation (TSE:IMG) may be sending bullish signals at the moment, given that almost half of all the Metals and Mining companies in Canada have P/S ratios greater than 3.2x and even P/S higher than 17x 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 limited.

View our latest analysis for IAMGOLD

What Does IAMGOLD's Recent Performance Look Like?

IAMGOLD certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For IAMGOLD?

The only time you'd be truly comfortable seeing a P/S as low as IAMGOLD's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 13% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 49% during the coming year according to the three analysts following the company. With the industry only predicted to deliver 19%, the company is positioned for a stronger revenue result.

With this information, we find it odd that IAMGOLD is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

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.

IAMGOLD's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

It is also worth noting that we have found 2 warning signs for IAMGOLD (1 is a bit unpleasant!) that you need to take into consideration.

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

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