Lucara Diamond Corp. (TSE:LUC) Doing What It Can To Lift Shares

You may think that with a price-to-sales (or "P/S") ratio of 0.9x Lucara Diamond Corp. (TSE:LUC) is a stock worth checking out, seeing as almost half of all the Metals and Mining companies in Canada have P/S ratios greater than 2.7x and even P/S higher than 21x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Lucara Diamond

How Has Lucara Diamond Performed Recently?

Lucara Diamond 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. If this is the case, then existing shareholders will probably struggle to get excited 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 Lucara Diamond.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

Retrospectively, the last year delivered a frustrating 6.9% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 22% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 26% over the next year. With the industry predicted to deliver 25% growth , the company is positioned for a comparable revenue result.

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

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've seen that Lucara Diamond currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Having said that, be aware Lucara Diamond is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Lucara Diamond's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.