Slammed 38% Bushveld Minerals Limited (LON:BMN) Screens Well Here But There Might Be A Catch

Unfortunately for some shareholders, the Bushveld Minerals Limited (LON:BMN) share price has dived 38% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 86% share price decline.

Since its price has dipped substantially, Bushveld Minerals' price-to-sales (or "P/S") ratio of 0.1x might make it look like a strong buy right now compared to the wider Metals and Mining industry in the United Kingdom, where around half of the companies have P/S ratios above 2.1x and even P/S above 7x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Bushveld Minerals

How Bushveld Minerals Has Been Performing

Bushveld Minerals' negative revenue growth of late has neither been better nor worse than most other companies. Perhaps the market is expecting future revenue performance to deteriorate further, which has kept the P/S suppressed. You'd much rather the company continue improving its revenue if you still believe in the business. At the very least, you'd be hoping that revenue doesn't fall off a cliff if your plan is to pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Bushveld Minerals will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Bushveld Minerals?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Bushveld Minerals' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 7.4% decrease to the company's top line. Even so, admirably revenue has lifted 53% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 32% over the next year. That's shaping up to be materially higher than the 1.0% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Bushveld Minerals' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Bushveld Minerals' P/S?

Having almost fallen off a cliff, Bushveld Minerals' share price has pulled its P/S way down as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Bushveld Minerals' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 5 warning signs for Bushveld Minerals you should be aware of, and 4 of them make us uncomfortable.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com