Why Investors Shouldn't Be Surprised By Auriant Mining AB (publ)'s (STO:AUR) Low P/S

With a price-to-sales (or "P/S") ratio of 0.3x Auriant Mining AB (publ) (STO:AUR) may be sending bullish signals at the moment, given that almost half of all the Metals and Mining companies in Sweden have P/S ratios greater than 0.8x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Auriant Mining

What Does Auriant Mining's P/S Mean For Shareholders?

For example, consider that Auriant Mining's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. 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 out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Auriant Mining's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Auriant Mining?

In order to justify its P/S ratio, Auriant Mining would need to produce sluggish growth that's trailing 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 27%. As a result, revenue from three years ago have also fallen 30% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for a contraction of 3.8% shows the industry is more attractive on an annualised basis regardless.

With this information, it's not too hard to see why Auriant Mining is trading at a lower P/S in comparison. Nonetheless, with revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. Even just maintaining these prices will be difficult to achieve as recent revenue trends are already weighing down the shares heavily.

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

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.

As we suspected, our examination of Auriant Mining revealed its sharp three-year contraction in revenue is contributing to its low P/S, given the industry is set to shrink less severely. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. However, we're still cautious about the company's ability to prevent an acceleration of its recent medium-term course and resist even greater pain to its business from the broader industry turmoil. In the meantime, unless the company's relative performance improves, the share price will hit a barrier around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Auriant Mining, and understanding them should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.