Optimistic Investors Push Goldgroup Mining Inc. (CVE:GGA) Shares Up 77% But Growth Is Lacking

Goldgroup Mining Inc. (CVE:GGA) shares have continued their recent momentum with a 77% gain in the last month alone. This latest share price bounce rounds out a remarkable 2,200% gain over the last twelve months.

Following the firm bounce in price, Goldgroup Mining may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 5.7x, since almost half of all companies in the Metals and Mining industry in Canada have P/S ratios under 3.6x and even P/S lower than 1.5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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View our latest analysis for Goldgroup Mining

What Does Goldgroup Mining's P/S Mean For Shareholders?

Recent times have been quite advantageous for Goldgroup Mining as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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.

How Is Goldgroup Mining's Revenue Growth Trending?

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.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. However, this wasn't enough as the latest three year period has seen the company endure a nasty 20% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

In contrast to the company, the rest of the industry is expected to grow by 71% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

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. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Goldgroup Mining's P/S

Goldgroup Mining's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Goldgroup Mining currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. 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.

Plus, you should also learn about these 4 warning signs we've spotted with Goldgroup Mining.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.