Sotkamo Silver AB (NGM:SOSI) Stocks Shoot Up 27% But Its P/S Still Looks Reasonable

Sotkamo Silver AB (NGM:SOSI) shares have continued their recent momentum with a 27% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 88% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Sotkamo Silver's price-to-sales (or "P/S") ratio of 0.9x is worth a mention when it essentially matches the median P/S in Sweden's Metals and Mining industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Sotkamo Silver

What Does Sotkamo Silver's Recent Performance Look Like?

Sotkamo Silver certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Sotkamo Silver's to be considered reasonable.

Retrospectively, the last year delivered a decent 3.9% gain to the company's revenues. The latest three year period has also seen a 14% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 3.6% each year during the coming three years according to the lone analyst following the company. That's shaping up to be similar to the 3.4% each year growth forecast for the broader industry.

With this information, we can see why Sotkamo Silver is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What Does Sotkamo Silver's P/S Mean For Investors?

Sotkamo Silver's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

A Sotkamo Silver's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Metals and Mining industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Sotkamo Silver (2 are a bit concerning!) that you need to be mindful 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.