What Minera Frisco, S.A.B. de C.V.'s (BMV:MFRISCOA-1) 37% Share Price Gain Is Not Telling You

The Minera Frisco, S.A.B. de C.V. (BMV:MFRISCOA-1) share price has done very well over the last month, posting an excellent gain of 37%. Unfortunately, despite the strong performance over the last month, the full year gain of 5.3% isn't as attractive.

Since its price has surged higher, when almost half of the companies in Mexico's Metals and Mining industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Minera Frisco. de as a stock probably not worth researching with its 2.1x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Minera Frisco. de

What Does Minera Frisco. de's P/S Mean For Shareholders?

For example, consider that Minera Frisco. de's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. 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 Minera Frisco. de, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Minera Frisco. de's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Minera Frisco. de's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 30% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 4.5% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 1.1% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Minera Frisco. de is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

Minera Frisco. de shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

Our examination of Minera Frisco. de revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Minera Frisco. de 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.