Further Upside For Metals Exploration plc (LON:MTL) Shares Could Introduce Price Risks After 27% Bounce

Metals Exploration plc (LON:MTL) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 184% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Metals Exploration may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.8x, considering almost half of all companies in the Metals and Mining industry in the United Kingdom have P/S ratios greater than 2x and even P/S higher than 11x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Metals Exploration

What Does Metals Exploration's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Metals Exploration has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 7.6% last year. The solid recent performance means it was also able to grow revenue by 28% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 9.3% as estimated by the one analyst watching the company. With the industry only predicted to deliver 1.3%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Metals Exploration's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Metals Exploration's stock price has surged recently, but its but its P/S still remains modest. 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.

To us, it seems Metals Exploration currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Metals Exploration is showing 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.