Investor Optimism Abounds Elemental Altus Royalties Corp. (CVE:ELE) But Growth Is Lacking

With a price-to-sales (or "P/S") ratio of 16.2x Elemental Altus Royalties Corp. (CVE:ELE) may be sending very bearish signals at the moment, given that almost half of all the Metals and Mining companies in Canada have P/S ratios under 3.3x and even P/S lower than 1.2x 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 so lofty.

Check out our latest analysis for Elemental Altus Royalties

What Does Elemental Altus Royalties' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Elemental Altus Royalties has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as Elemental Altus Royalties' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 43% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 157% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 79% over the next year. That's shaping up to be materially lower than the 90% growth forecast for the broader industry.

With this information, we find it concerning that Elemental Altus Royalties is trading at a P/S higher than the industry. 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.

The Key Takeaway

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 comes as a surprise to see Elemental Altus Royalties trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You always need to take note of risks, for example - Elemental Altus Royalties 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.