Pinning Down Sandstorm Gold Ltd.'s (TSE:SSL) P/S Is Difficult Right Now

Sandstorm Gold Ltd.'s (TSE:SSL) price-to-sales (or "P/S") ratio of 11x may look like a poor investment opportunity when you consider close to half the companies in the Metals and Mining industry in Canada have P/S ratios below 3.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Sandstorm Gold

What Does Sandstorm Gold's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Sandstorm Gold's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Sandstorm Gold will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Sandstorm Gold?

In order to justify its P/S ratio, Sandstorm Gold would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.9%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 53% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 1.7% each year over the next three years. That's shaping up to be materially lower than the 37% each year growth forecast for the broader industry.

In light of this, it's alarming that Sandstorm Gold's P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Sandstorm Gold's P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Sandstorm Gold, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Sandstorm Gold has 2 warning signs we think you should be aware of.

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.