Positive Sentiment Still Eludes Andrada Mining Limited (LON:ATM) Following 25% Share Price Slump

Andrada Mining Limited (LON:ATM) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 55% share price decline.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Andrada Mining's P/S ratio of 2.4x, since the median price-to-sales (or "P/S") ratio for the Metals and Mining industry in the United Kingdom is also close to 2.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Andrada Mining

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

Andrada Mining certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. 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.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Andrada Mining's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 83% last year. The latest three year period has also seen an excellent 260% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 47% per year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 3.0% per year, which is noticeably less attractive.

With this information, we find it interesting that Andrada Mining is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

With its share price dropping off a cliff, the P/S for Andrada Mining looks to be in line with the rest of the Metals and Mining industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Andrada Mining currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Andrada Mining, and understanding them should be part of your investment process.

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.