Jaguar Mining Inc.'s (TSE:JAG) Share Price Boosted 27% But Its Business Prospects Need A Lift Too

Despite an already strong run, Jaguar Mining Inc. (TSE:JAG) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days bring the annual gain to a very sharp 44%.

Even after such a large jump in price, Jaguar Mining's price-to-sales (or "P/S") ratio of 1.4x might still make it look like a buy right now compared to the Metals and Mining industry in Canada, where around half of the companies have P/S ratios above 3.1x and even P/S above 25x 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 limited.

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View our latest analysis for Jaguar Mining

How Jaguar Mining Has Been Performing

Jaguar Mining could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Jaguar Mining's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jaguar Mining's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 15% gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 2.6% per annum over the next three years. With the industry predicted to deliver 63% growth each year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Jaguar Mining's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Despite Jaguar Mining's share price climbing recently, its P/S still lags most other companies. 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.

As we suspected, our examination of Jaguar Mining's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Jaguar Mining, and understanding should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.