What Goldgroup Mining Inc.'s (CVE:GGA) 26% Share Price Gain Is Not Telling You

Goldgroup Mining Inc. (CVE:GGA) shares have had a really impressive month, gaining 26% after a shaky period beforehand. This latest share price bounce rounds out a remarkable 1,130% gain over the last twelve months.

After such a large jump in price, Goldgroup Mining may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 14.7x, since almost half of all companies in the Metals and Mining industry in Canada have P/S ratios under 5.9x and even P/S lower than 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.

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See our latest analysis for Goldgroup Mining

How Goldgroup Mining Has Been Performing

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. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Goldgroup Mining's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Goldgroup Mining?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Goldgroup Mining's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's top line. Even so, admirably revenue has lifted 299% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 80% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it worrying that Goldgroup Mining's P/S exceeds that of its industry peers. 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 good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From 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.

The fact that Goldgroup Mining currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Goldgroup Mining you should know about.

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.