Century Aluminum Company's (NASDAQ:CENX) 27% Share Price Surge Not Quite Adding Up

Those holding Century Aluminum Company (NASDAQ:CENX) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last month tops off a massive increase of 166% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Century Aluminum's price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" compared to the Metals and Mining industry in the United States, where the median P/S ratio is around 1.2x. 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.

Check out our latest analysis for Century Aluminum

What Does Century Aluminum's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Century Aluminum's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Century Aluminum's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Century Aluminum's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.2%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 20% in total. 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 climb by 1.9% during the coming year according to the three analysts following the company. With the industry predicted to deliver 21% growth, the company is positioned for a weaker revenue result.

In light of this, it's curious that Century Aluminum's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Century Aluminum's P/S?

Century Aluminum's 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.

Our look at the analysts forecasts of Century Aluminum's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Century Aluminum (3 shouldn't be ignored!) that you should be aware of before investing here.

If you're unsure about the strength of Century Aluminum's 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.