Investors Still Aren't Entirely Convinced By Jaguar Mining Inc.'s (TSE:JAG) Revenues Despite 26% Price Jump

Jaguar Mining Inc. (TSE:JAG) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 94% in the last year.

Although its price has surged higher, Jaguar Mining may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 3.2x, considering almost half of all companies in the Metals and Mining industry in Canada have P/S ratios greater than 6.2x and even P/S higher than 43x 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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See our latest analysis for Jaguar Mining

How Jaguar Mining Has Been Performing

Jaguar Mining hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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Do Revenue Forecasts Match The Low P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.3%. This means it has also seen a slide in revenue over the longer-term as revenue is down 6.4% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 30% per annum as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 22% each year, which is noticeably less attractive.

With this information, we find it odd that Jaguar Mining 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.

What We Can Learn From Jaguar Mining's P/S?

Jaguar Mining's stock price has surged recently, but its but its P/S still remains modest. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

To us, it seems Jaguar Mining currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Jaguar Mining with six simple checks will allow you to discover any risks that could be an issue.

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.