Starcore International Mines Ltd.'s (TSE:SAM) Shares Bounce 27% But Its Business Still Trails The Industry

Starcore International Mines Ltd. (TSE:SAM) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 150% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Starcore International Mines may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.7x, considering almost half of all companies in the Metals and Mining industry in Canada have P/S ratios greater than 3.5x and even P/S higher than 26x 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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Check out our latest analysis for Starcore International Mines

What Does Starcore International Mines' Recent Performance Look Like?

Starcore International Mines certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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 Starcore International Mines' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Starcore International Mines' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered an exceptional 33% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 38% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 67% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Starcore International Mines is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Starcore International Mines' P/S

Starcore International Mines' recent share price jump still sees fails to bring its P/S alongside 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.

As we suspected, our examination of Starcore International Mines revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Starcore International Mines that you need to be mindful of.

If you're unsure about the strength of Starcore International Mines' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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