Slammed 25% Andrada Mining Limited (LON:ATM) Screens Well Here But There Might Be A Catch

Andrada Mining Limited (LON:ATM) shares have had a horrible month, losing 25% after a relatively good period beforehand. 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, there still wouldn't be many who think Andrada Mining's price-to-sales (or "P/S") ratio of 2.4x is worth a mention when the median P/S in the United Kingdom's Metals and Mining industry is similar at about 2.1x. 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.

See our latest analysis for Andrada Mining

How Andrada Mining Has Been Performing

With revenue growth that's superior to most other companies of late, Andrada Mining has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Is There Some Revenue Growth Forecasted For Andrada Mining?

In order to justify its P/S ratio, Andrada Mining would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 83% last year. Pleasingly, revenue has also lifted 260% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 47% per year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 3.0% per year growth forecast for the broader industry.

In light of this, it's curious that Andrada Mining's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Andrada Mining's plummeting stock price has brought its P/S back to a similar region as the rest of the 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. 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. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Before you settle on your opinion, we've discovered 4 warning signs for Andrada Mining that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.