IMPACT Silver Corp. (CVE:IPT) Surges 40% Yet Its Low P/S Is No Reason For Excitement

IMPACT Silver Corp. (CVE:IPT) shares have had a really impressive month, gaining 40% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 46%.

Even after such a large jump in price, IMPACT Silver's price-to-sales (or "P/S") ratio of 2.7x might still make it look like a strong buy right now compared to the wider Metals and Mining industry in Canada, where around half of the companies have P/S ratios above 6.3x and even P/S above 43x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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See our latest analysis for IMPACT Silver

What Does IMPACT Silver's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, IMPACT Silver has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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 IMPACT Silver's earnings, revenue and cash flow.

How Is IMPACT Silver's Revenue Growth Trending?

IMPACT Silver's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered an exceptional 53% gain to the company's top line. The latest three year period has also seen an excellent 159% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 51% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why IMPACT Silver is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

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

IMPACT Silver's recent share price jump still sees fails to bring its P/S alongside the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of IMPACT Silver confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You need to take note of risks, for example - IMPACT Silver has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

If you're unsure about the strength of IMPACT Silver'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.