Investors Appear Satisfied With Anglo Asian Mining PLC's (LON:AAZ) Prospects As Shares Rocket 31%

Despite an already strong run, Anglo Asian Mining PLC (LON:AAZ) shares have been powering on, with a gain of 31% in the last thirty days. The last month tops off a massive increase of 146% in the last year.

Since its price has surged higher, you could be forgiven for thinking Anglo Asian Mining is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5.8x, considering almost half the companies in the United Kingdom's Metals and Mining industry have P/S ratios below 2.9x. 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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See our latest analysis for Anglo Asian Mining

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

Anglo Asian Mining certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Anglo Asian Mining would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 136% gain to the company's top line. Still, revenue has fallen 17% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 248% over the next year. With the industry only predicted to deliver 4.3%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Anglo Asian Mining's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Anglo Asian Mining's P/S?

Shares in Anglo Asian Mining have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Anglo Asian Mining's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Anglo Asian Mining that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.