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Take Care Before Diving Into The Deep End On Pan American Silver Corp. (TSE:PAAS)
It's not a stretch to say that Pan American Silver Corp.'s (TSE:PAAS) price-to-sales (or "P/S") ratio of 2.4x right now seems quite "middle-of-the-road" for companies in the Metals and Mining industry in Canada, where the median P/S ratio is around 2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for Pan American Silver
What Does Pan American Silver's P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, Pan American Silver has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on Pan American Silver will help you uncover what's on the horizon.Is There Some Revenue Growth Forecasted For Pan American Silver?
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.
Retrospectively, the last year delivered an exceptional 31% gain to the company's top line. The latest three year period has also seen an excellent 54% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next year should generate growth of 25% as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 16% growth forecast for the broader industry.
In light of this, it's curious that Pan American Silver's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.
What Does Pan American Silver's P/S Mean For Investors?
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.
Despite enticing revenue growth figures that outpace the industry, Pan American Silver's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.
Before you take the next step, you should know about the 2 warning signs for Pan American Silver that we have uncovered.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
About TSX:PAAS
Pan American Silver
Engages in the exploration, mine development, extraction, processing, refining, and reclamation of silver, gold, zinc, lead, and copper mines in Canada, Mexico, Peru, Bolivia, Argentina, Chile, and Brazil.
Adequate balance sheet with moderate growth potential.