Goldgroup Mining Inc.'s (CVE:GGA) Shares Climb 25% But Its Business Is Yet to Catch Up

Despite an already strong run, Goldgroup Mining Inc. (CVE:GGA) shares have been powering on, with a gain of 25% in the last thirty days. This latest share price bounce rounds out a remarkable 1,340% gain over the last twelve months.

Since its price has surged higher, Goldgroup Mining may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 17.5x, since almost half of all companies in the Metals and Mining industry in Canada have P/S ratios under 7.1x and even P/S lower than 2x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Goldgroup Mining

How Has Goldgroup Mining Performed Recently?

For instance, Goldgroup Mining's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Although there are no analyst estimates available for Goldgroup Mining, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Goldgroup Mining?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow by 52% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Goldgroup Mining is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Goldgroup Mining's P/S

Shares in Goldgroup Mining have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Goldgroup Mining revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Goldgroup Mining that you should be aware of.

If you're unsure about the strength of Goldgroup Mining'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.