Copperstone Resources AB's (STO:COPP) 28% Jump Shows Its Popularity With Investors

Copperstone Resources AB (STO:COPP) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 2.5% isn't as impressive.

Following the firm bounce in price, you could be forgiven for thinking Copperstone Resources is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 10x, considering almost half the companies in Sweden's Metals and Mining industry have P/S ratios below 0.9x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Copperstone Resources

What Does Copperstone Resources' Recent Performance Look Like?

Recent times have been pleasing for Copperstone Resources as its revenue has risen in spite of the industry's average revenue going into reverse. The P/S ratio is probably high because investors think the company will continue to navigate the broader industry headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Copperstone Resources will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 41% gain to the company's top line. The latest three year period has also seen an incredible 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.

Turning to the outlook, the next three years should generate growth of 28% per year as estimated by the only analyst watching the company. With the industry only predicted to deliver 3.7% per year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Copperstone Resources' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Copperstone Resources' P/S?

The strong share price surge has lead to Copperstone Resources' P/S soaring as well. 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.

As we suspected, our examination of Copperstone Resources' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Copperstone Resources (1 is a bit unpleasant!) that you need to be mindful of.

If you're unsure about the strength of Copperstone Resources' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.