Subdued Growth No Barrier To Hochschild Mining plc (LON:HOC) With Shares Advancing 37%

Hochschild Mining plc (LON:HOC) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. The annual gain comes to 121% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Hochschild Mining's P/S ratio of 1.8x, since the median price-to-sales (or "P/S") ratio for the Metals and Mining industry in the United Kingdom is also close to 2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Hochschild Mining

How Has Hochschild Mining Performed Recently?

With revenue growth that's superior to most other companies of late, Hochschild Mining has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Do Revenue Forecasts Match The P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 37%. Revenue has also lifted 17% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 4.1% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 12% each year, which is noticeably more attractive.

With this information, we find it interesting that Hochschild Mining is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does Hochschild Mining's P/S Mean For Investors?

Hochschild Mining appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at the analysts forecasts of Hochschild Mining's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Hochschild Mining, and understanding should be part of your investment process.

If you're unsure about the strength of Hochschild Mining's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.