There Is A Reason Teck Resources Limited's (TSE:TECK.B) Price Is Undemanding

Teck Resources Limited's (TSE:TECK.B) price-to-sales (or "P/S") ratio of 2.3x might make it look like a buy right now compared to the Metals and Mining industry in Canada, where around half of the companies have P/S ratios above 4.4x and even P/S above 29x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Teck Resources

How Has Teck Resources Performed Recently?

Teck Resources' revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

How Is Teck Resources' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 37% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 43% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 4.9% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 50% per year growth forecast for the broader industry.

With this in consideration, its clear as to why Teck Resources' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As expected, our analysis of Teck Resources' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Teck Resources that 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.