Optimistic Investors Push Golconda Gold Ltd. (CVE:GG) Shares Up 38% But Growth Is Lacking

Golconda Gold Ltd. (CVE:GG) shares have continued their recent momentum with a 38% gain in the last month alone. This latest share price bounce rounds out a remarkable 762% gain over the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Golconda Gold's P/S ratio of 5x, since the median price-to-sales (or "P/S") ratio for the Metals and Mining industry in Canada is also close to 6.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Golconda Gold

How Golconda Gold Has Been Performing

Golconda Gold certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Golconda Gold's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Golconda Gold?

The only time you'd be comfortable seeing a P/S like Golconda Gold's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 127% last year. The strong recent performance means it was also able to grow revenue by 63% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 63% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Golconda Gold's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

Golconda Gold appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Our examination of Golconda Gold revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Golconda Gold that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.