Pan American Silver Corp. (TSE:PAAS) Stock Rockets 31% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Pan American Silver Corp. (TSE:PAAS) shares have been powering on, with a gain of 31% in the last thirty days. The annual gain comes to 103% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, there still wouldn't be many who think Pan American Silver's price-to-sales (or "P/S") ratio of 6x is worth a mention when the median P/S in Canada's Metals and Mining industry is similar at about 6.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for Pan American Silver

What Does Pan American Silver's P/S Mean For Shareholders?

Pan American Silver could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Pan American Silver's Revenue Growth Trending?

Pan American Silver's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The strong recent performance means it was also able to grow revenue by 111% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 9.4% each year over the next three years. With the industry predicted to deliver 22% growth each year, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Pan American Silver is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Pan American Silver's P/S?

Its shares have lifted substantially and now Pan American Silver's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Given that Pan American Silver's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Pan American Silver, and understanding these should be part of your investment process.

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.