The Market Doesn't Like What It Sees From Petra Diamonds Limited's (LON:PDL) Revenues Yet As Shares Tumble 26%

Petra Diamonds Limited (LON:PDL) shares have had a horrible month, losing 26% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 52% share price decline.

Following the heavy fall in price, Petra Diamonds' price-to-sales (or "P/S") ratio of 0.2x might 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 2x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

We've discovered 1 warning sign about Petra Diamonds. View them for free.

Check out our latest analysis for Petra Diamonds

What Does Petra Diamonds' Recent Performance Look Like?

Petra Diamonds' revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 36% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 6.7% per annum during the coming three years according to the two analysts following the company. With the industry predicted to deliver 21% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Petra Diamonds' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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

Petra Diamonds' P/S has taken a dip along with its share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Petra Diamonds maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Petra Diamonds that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.