Further Upside For Andean Precious Metals Corp. (CVE:APM) Shares Could Introduce Price Risks After 31% Bounce

Despite an already strong run, Andean Precious Metals Corp. (CVE:APM) shares have been powering on, with a gain of 31% in the last thirty days. The last month tops off a massive increase of 151% in the last year.

In spite of the firm bounce in price, Andean Precious Metals' price-to-sales (or "P/S") ratio of 0.8x might still make it look like a strong buy right now compared to the wider Metals and Mining industry in Canada, where around half of the companies have P/S ratios above 3.3x and even P/S above 21x are quite common. 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.

See our latest analysis for Andean Precious Metals

What Does Andean Precious Metals' P/S Mean For Shareholders?

Andean Precious Metals certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. 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.

Keen to find out how analysts think Andean Precious Metals' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Andean Precious Metals?

The only time you'd be truly comfortable seeing a P/S as depressed as Andean Precious Metals' is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 128%. Revenue has also lifted 18% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 47% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 22%, which is noticeably less attractive.

With this information, we find it odd that Andean Precious Metals is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Andean Precious Metals' recent share price jump still sees fails to bring its P/S alongside the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Andean Precious Metals' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

It is also worth noting that we have found 2 warning signs for Andean Precious Metals that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.