Sherritt International Corporation's (TSE:S) Price Is Right But Growth Is Lacking After Shares Rocket 28%

The Sherritt International Corporation (TSE:S) share price has done very well over the last month, posting an excellent gain of 28%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.6% in the last twelve months.

In spite of the firm bounce in price, Sherritt International may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.5x, considering almost half of all companies in the Metals and Mining industry in Canada have P/S ratios greater than 6.5x and even P/S higher than 42x aren't out of the ordinary. 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.

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See our latest analysis for Sherritt International

How Has Sherritt International Performed Recently?

Sherritt International could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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 Sherritt International.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Sherritt International's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 8.5% as estimated by the one analyst watching the company. With the industry predicted to deliver 52% growth, that's a disappointing outcome.

With this information, we are not surprised that Sherritt International is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Sherritt International's P/S Mean For Investors?

Even after such a strong price move, Sherritt International's P/S still trails the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Sherritt International's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Sherritt International is showing 3 warning signs in our investment analysis, and 1 of those can't be ignored.

If these risks are making you reconsider your opinion on Sherritt International, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.