Some Confidence Is Lacking In Compañía de Minas Buenaventura S.A.A.'s (NYSE:BVN) P/S

When you see that almost half of the companies in the Metals and Mining industry in the United States have price-to-sales ratios (or "P/S") below 2.1x, Compañía de Minas Buenaventura S.A.A. (NYSE:BVN) looks to be giving off some sell signals with its 3.5x P/S ratio. 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 Compañía de Minas BuenaventuraA

What Does Compañía de Minas BuenaventuraA's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Compañía de Minas BuenaventuraA has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Is There Enough Revenue Growth Forecasted For Compañía de Minas BuenaventuraA?

The only time you'd be truly comfortable seeing a P/S as high as Compañía de Minas BuenaventuraA's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an exceptional 37% gain to the company's top line. Revenue has also lifted 28% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 7.2% over the next year. That's shaping up to be materially lower than the 12% growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that Compañía de Minas BuenaventuraA's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

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.

It comes as a surprise to see Compañía de Minas BuenaventuraA trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Compañía de Minas BuenaventuraA that you need to take into consideration.

If these risks are making you reconsider your opinion on Compañía de Minas BuenaventuraA, 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.