Ramaco Resources, Inc. (NASDAQ:METC) Stock Rockets 76% As Investors Are Less Pessimistic Than Expected

Ramaco Resources, Inc. (NASDAQ:METC) shares have continued their recent momentum with a 76% gain in the last month alone. The last 30 days were the cherry on top of the stock's 330% gain in the last year, which is nothing short of spectacular.

Following the firm bounce in price, Ramaco Resources may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 4.8x, when you consider almost half of the companies in the Metals and Mining industry in the United States have P/S ratios under 3.1x and even P/S lower than 0.6x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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See our latest analysis for Ramaco Resources

How Ramaco Resources Has Been Performing

Ramaco Resources could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 13%. Even so, admirably revenue has lifted 37% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 17% per year during the coming three years according to the six analysts following the company. With the industry predicted to deliver 15% growth per annum, the company is positioned for a comparable revenue result.

With this information, we find it interesting that Ramaco Resources is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Key Takeaway

The large bounce in Ramaco Resources' shares has lifted the company's P/S handsomely. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Given Ramaco Resources' future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

It is also worth noting that we have found 2 warning signs for Ramaco Resources that you need to take into consideration.

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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.