Andrada Mining Limited (LON:ATM) Might Not Be As Mispriced As It Looks After Plunging 26%

To the annoyance of some shareholders, Andrada Mining Limited (LON:ATM) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 58% loss during that time.

Even after such a large drop in price, it's still not a stretch to say that Andrada Mining's price-to-sales (or "P/S") ratio of 1.8x right now seems quite "middle-of-the-road" compared to the Metals and Mining industry in the United Kingdom, seeing as it matches the P/S ratio of the wider industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Andrada Mining

How Andrada Mining Has Been Performing

Andrada Mining certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. 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 not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Andrada Mining.

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 43%. The latest three year period has also seen an excellent 122% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 103% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 5.2% each year, which is noticeably less attractive.

With this in consideration, we find it intriguing that Andrada Mining's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

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

Andrada Mining's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

Looking at Andrada Mining's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Andrada Mining (1 is concerning!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Andrada Mining, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.