Investors Appear Satisfied With Mongolian Mining Corporation's (HKG:975) Prospects As Shares Rocket 38%

Despite an already strong run, Mongolian Mining Corporation (HKG:975) shares have been powering on, with a gain of 38% in the last thirty days. The annual gain comes to 272% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, you could be forgiven for thinking Mongolian Mining is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.5x, considering almost half the companies in Hong Kong's Metals and Mining industry have P/S ratios below 0.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Mongolian Mining

How Has Mongolian Mining Performed Recently?

With revenue growth that's exceedingly strong of late, Mongolian Mining has been doing very well. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Mongolian Mining, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Mongolian Mining's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Mongolian Mining's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an explosive gain to the company's top line. The latest three year period has also seen an excellent 109% overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 9.5% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's understandable that Mongolian Mining's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From Mongolian Mining's P/S?

The large bounce in Mongolian Mining's shares has lifted the company's P/S handsomely. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It's no surprise that Mongolian Mining can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

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

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.