Take Care Before Jumping Onto Guanajuato Silver Company Ltd. (CVE:GSVR) Even Though It's 26% Cheaper

Guanajuato Silver Company Ltd. (CVE:GSVR) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 36% in that time.

Since its price has dipped substantially, Guanajuato Silver's price-to-sales (or "P/S") ratio of 1x might make it look like a buy right now compared to the Metals and Mining industry in Canada, where around half of the companies have P/S ratios above 2.9x and even P/S above 17x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Guanajuato Silver

How Guanajuato Silver Has Been Performing

Recent times have been advantageous for Guanajuato Silver as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is Guanajuato Silver's Revenue Growth Trending?

In order to justify its P/S ratio, Guanajuato Silver would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 40% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the only analyst following the company. With the industry only predicted to deliver 16%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Guanajuato Silver's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Guanajuato Silver's P/S?

Guanajuato Silver's recently weak share price has pulled its P/S back below other Metals and Mining companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Guanajuato Silver's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 4 warning signs for Guanajuato Silver that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.