Further Upside For AMG Critical Materials N.V. (AMS:AMG) Shares Could Introduce Price Risks After 31% Bounce

Despite an already strong run, AMG Critical Materials N.V. (AMS:AMG) shares have been powering on, with a gain of 31% in the last thirty days. The last 30 days bring the annual gain to a very sharp 52%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about AMG Critical Materials' P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Metals and Mining industry in the Netherlands is also close to 0.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Check out our latest analysis for AMG Critical Materials

What Does AMG Critical Materials' P/S Mean For Shareholders?

AMG Critical Materials could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.2%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 9.3% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 8.9% during the coming year according to the four analysts following the company. That would be an excellent outcome when the industry is expected to decline by 0.8%.

In light of this, it's peculiar that AMG Critical Materials' P/S sits in-line with the majority of other companies. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.

What Does AMG Critical Materials' P/S Mean For Investors?

AMG Critical Materials' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We note that even though AMG Critical Materials trades at a similar P/S as the rest of the industry, it far eclipses them in terms of forecasted revenue growth. We assume that investors are attributing some risk to the company's future revenues, keeping it from trading at a higher P/S. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Plus, you should also learn about these 2 warning signs we've spotted with AMG Critical Materials (including 1 which makes us a bit uncomfortable).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.