Even With A 36% Surge, Cautious Investors Are Not Rewarding Petra Diamonds Limited's (LON:PDL) Performance Completely

Petra Diamonds Limited (LON:PDL) shares have had a really impressive month, gaining 36% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 27% over that time.

Although its price has surged higher, given about half the companies operating in the United Kingdom's Metals and Mining industry have price-to-sales ratios (or "P/S") above 1.2x, you may still consider Petra Diamonds as an attractive investment with its 0.5x P/S ratio. 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 Petra Diamonds

What Does Petra Diamonds' Recent Performance Look Like?

Petra Diamonds has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. You'd much rather the company improve its revenue performance if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Petra Diamonds' 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?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 42%. Still, the latest three year period has seen an excellent 34% overall rise in revenue, in spite of its unsatisfying short-term performance. 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.

Turning to the outlook, the next three years should demonstrate the company's robustness, generating growth of 16% per year as estimated by the five analysts watching the company. With the rest of the industry predicted to shrink by 0.1% per year, that would be a fantastic result.

With this in mind, we find it intriguing that Petra Diamonds' P/S falls short of its industry peers. It looks like most investors aren't convinced at all that the company can achieve positive future growth in the face of a shrinking broader industry.

What We Can Learn From Petra Diamonds' P/S?

Petra Diamonds' stock price has surged recently, but its but its P/S still remains modest. 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 examination of Petra Diamonds' analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. Amidst challenging industry conditions, a key concern is whether the company can sustain its superior revenue growth trajectory. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Petra Diamonds (1 doesn't sit too well with us!) that you need to be mindful of.

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.