The Market Lifts TRX Gold Corporation (TSE:TRX) Shares 25% But It Can Do More

TRX Gold Corporation (TSE:TRX) shares have continued their recent momentum with a 25% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 23% is also fairly reasonable.

Even after such a large jump in price, TRX Gold may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.7x, since almost half of all companies in the Metals and Mining industry in Canada have P/S ratios greater than 4.7x and even P/S higher than 30x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for TRX Gold

What Does TRX Gold's P/S Mean For Shareholders?

Recent times haven't been great for TRX Gold as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. 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 TRX Gold.

Is There Any Revenue Growth Forecasted For TRX Gold?

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

Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 38% over the next year. Meanwhile, the rest of the industry is forecast to expand by 40%, which is not materially different.

With this in consideration, we find it intriguing that TRX Gold's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

Despite TRX Gold's share price climbing recently, its P/S still lags most other companies. 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.

It looks to us like the P/S figures for TRX Gold remain low despite growth that is expected to be in line with other companies in the industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for TRX Gold with six simple checks.

If you're unsure about the strength of TRX Gold's 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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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.