Mountain Province Diamonds Inc. (TSE:MPVD) Held Back By Insufficient Growth Even After Shares Climb 33%

Those holding Mountain Province Diamonds Inc. (TSE:MPVD) shares would be relieved that the share price has rebounded 33% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 63% share price drop in the last twelve months.

In spite of the firm bounce in price, Mountain Province Diamonds may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Metals and Mining industry in Canada have P/S ratios greater than 3.1x and even P/S higher than 20x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

View our latest analysis for Mountain Province Diamonds

What Does Mountain Province Diamonds' P/S Mean For Shareholders?

For instance, Mountain Province Diamonds' receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Mountain Province Diamonds will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Mountain Province Diamonds, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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 depressed as Mountain Province Diamonds' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 28% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 11% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 32% shows it's noticeably less attractive.

In light of this, it's understandable that Mountain Province Diamonds' P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Even after such a strong price move, Mountain Province Diamonds' P/S still trails the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

In line with expectations, Mountain Province Diamonds maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Mountain Province Diamonds that you should be aware of.

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.