Metals Exploration plc's (LON:MTL) Share Price Boosted 39% But Its Business Prospects Need A Lift Too

Metals Exploration plc (LON:MTL) shareholders have had their patience rewarded with a 39% share price jump in the last month. The annual gain comes to 114% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Metals Exploration's price-to-sales (or "P/S") ratio of 0.6x might still make it look like a buy right now compared to the Metals and Mining industry in the United Kingdom, where around half of the companies have P/S ratios above 1.5x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Metals Exploration

What Does Metals Exploration's P/S Mean For Shareholders?

Metals Exploration certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. 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 out of favour.

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

Is There Any Revenue Growth Forecasted For Metals Exploration?

Metals Exploration's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. The latest three year period has also seen an excellent 46% 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.

Shifting to the future, estimates from the only analyst covering the company suggest revenue growth is heading into negative territory, declining 7.3% over the next year. Meanwhile, the broader industry is forecast to expand by 151%, which paints a poor picture.

With this information, we are not surprised that Metals Exploration is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Metals Exploration's P/S?

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

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Metals Exploration's P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

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

If these risks are making you reconsider your opinion on Metals Exploration, 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.