Orvana Minerals Corp. (TSE:ORV) Surges 27% Yet Its Low P/S Is No Reason For Excitement

Orvana Minerals Corp. (TSE:ORV) shares have continued their recent momentum with a 27% gain in the last month alone. This latest share price bounce rounds out a remarkable 546% gain over the last twelve months.

Although its price has surged higher, Orvana Minerals may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.7x, considering almost half of all companies in the Metals and Mining industry in Canada have P/S ratios greater than 5.9x and even P/S higher than 41x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

See our latest analysis for Orvana Minerals

What Does Orvana Minerals' Recent Performance Look Like?

The revenue growth achieved at Orvana Minerals over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Orvana Minerals will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Orvana Minerals' earnings, revenue and cash flow.

How Is Orvana Minerals' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Orvana Minerals' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 13% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 51% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why Orvana Minerals' P/S falls short of the mark set by its industry peers. 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 Bottom Line On Orvana Minerals' P/S

Even after such a strong price move, Orvana Minerals' P/S still trails the rest of the industry. 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.

Our examination of Orvana Minerals confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Orvana Minerals you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.