Stock Analysis

Kinross Gold Corporation's (TSE:K) Shares Bounce 28% But Its Business Still Trails The Industry

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Kinross Gold Corporation (TSE:K) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 31% in the last year.

In spite of the firm bounce in price, Kinross Gold's price-to-sales (or "P/S") ratio of 1.8x 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 2.6x and even P/S above 15x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Kinross Gold

TSX:K Price to Sales Ratio vs Industry March 29th 2024

How Has Kinross Gold Performed Recently?

With revenue growth that's superior to most other companies of late, Kinross Gold has been doing relatively well. 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Kinross Gold will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 23% 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.

Looking ahead now, revenue is anticipated to slump, contracting by 2.1% per year during the coming three years according to the twelve analysts following the company. Meanwhile, the broader industry is forecast to expand by 7.6% per year, which paints a poor picture.

With this information, we are not surprised that Kinross Gold is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Kinross Gold's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Kinross Gold's P/S close to the industry median. 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.

It's clear to see that Kinross Gold maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Kinross Gold that you need to take into consideration.

If these risks are making you reconsider your opinion on Kinross Gold, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're helping make it simple.

Find out whether Kinross Gold is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.