Copperstone Resources AB's (STO:COPP) Shareholders Might Be Looking For Exit

Copperstone Resources AB's (STO:COPP) price-to-sales (or "P/S") ratio of 9.3x may look like a poor investment opportunity when you consider close to half the companies in the Metals and Mining industry in Sweden have P/S ratios below 0.9x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Copperstone Resources

How Has Copperstone Resources Performed Recently?

Recent times have been advantageous for Copperstone Resources as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

Copperstone Resources' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 41% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to plummet, contracting by 100% during the coming year according to the sole analyst following the company. Meanwhile, the broader industry is forecast to moderate by 4.7%, which indicates the company should perform poorly indeed.

In light of this, it's odd that Copperstone Resources' P/S sits above the majority of other companies. When revenue shrink rapidly often the P/S premium shrinks too, which could set up shareholders for future disappointment. There's strong potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth.

What Does Copperstone Resources' P/S Mean For Investors?

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 look at Copperstone Resources' analyst forecasts determined that its even shakier outlook against the industry isn't impacting its high P/S anywhere near as much as we would have predicted. When we see a weak revenue outlook, we suspect the share price is at risk of declining, sending the high P/S lower. We're also cautious about the company's ability to resist even greater pain to its business from the broader industry turmoil. Unless there's a material improvement in the forecast revenue growth for the company, it's hard to justify the share price at current levels.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Copperstone Resources (2 are significant) you should be aware 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.