Benign Growth For Kinross Gold Corporation (TSE:K) Underpins Its Share Price

With a price-to-sales (or "P/S") ratio of 2.5x Kinross Gold Corporation (TSE:K) 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. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Kinross Gold

How Has Kinross Gold Performed Recently?

Kinross Gold certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

How Is Kinross Gold's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. Revenue has also lifted 9.0% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 3.1% per year over the next three years. With the industry predicted to deliver 24% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why Kinross Gold is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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.

As expected, our analysis of Kinross Gold's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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. The company will need a change of fortune to justify the P/S rising higher in the future.

Plus, you should also learn about this 1 warning sign we've spotted with Kinross Gold.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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