There Is A Reason Alpha Metallurgical Resources, Inc.'s (NYSE:AMR) Price Is Undemanding

With a price-to-sales (or "P/S") ratio of 0.6x Alpha Metallurgical Resources, Inc. (NYSE:AMR) may be sending bullish signals at the moment, given that almost half of all the Metals and Mining companies in the United States have P/S ratios greater than 1.9x and even P/S higher than 7x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for Alpha Metallurgical Resources

How Alpha Metallurgical Resources Has Been Performing

Alpha Metallurgical Resources could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

The only time you'd be truly comfortable seeing a P/S as low as Alpha Metallurgical Resources' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 11% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 5.1% as estimated by the two analysts watching the company. Meanwhile, the broader industry is forecast to expand by 8.9%, which paints a poor picture.

With this information, we are not surprised that Alpha Metallurgical Resources is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Alpha Metallurgical Resources' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Alpha Metallurgical Resources' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Having said that, be aware Alpha Metallurgical Resources is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Alpha Metallurgical Resources, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.