Sigma Lithium Corporation (NASDAQ:SGML) Stocks Shoot Up 28% But Its P/S Still Looks Reasonable

The Sigma Lithium Corporation (NASDAQ:SGML) share price has done very well over the last month, posting an excellent gain of 28%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 45% over that time.

After such a large jump in price, Sigma Lithium's price-to-sales (or "P/S") ratio of 6.1x might make it look like a strong sell right now compared to other companies in the Metals and Mining industry in the United States, where around half of the companies have P/S ratios below 3x and even P/S below 0.7x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Sigma Lithium

What Does Sigma Lithium's Recent Performance Look Like?

Sigma Lithium 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. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Sigma Lithium?

The only time you'd be truly comfortable seeing a P/S as steep as Sigma Lithium's is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 38%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 65% per annum during the coming three years according to the four analysts following the company. With the industry only predicted to deliver 15% per annum, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Sigma Lithium's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Sigma Lithium's P/S Mean For Investors?

Sigma Lithium's P/S has grown nicely over the last month thanks to a handy boost in the share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Sigma Lithium's 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. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Sigma Lithium has 3 warning signs we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.