Coeur Mining, Inc.'s (NYSE:CDE) 30% Share Price Plunge Could Signal Some Risk

Coeur Mining, Inc. (NYSE:CDE) shares have retraced a considerable 30% in the last month, reversing a fair amount of their solid recent performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 141%.

In spite of the heavy fall in price, Coeur Mining may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 5.6x, when you consider almost half of the companies in the Metals and Mining industry in the United States have P/S ratios under 2.6x and even P/S lower than 0.5x 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 so lofty.

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View our latest analysis for Coeur Mining

How Has Coeur Mining Performed Recently?

Coeur Mining certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

In order to justify its P/S ratio, Coeur Mining would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 68% gain to the company's top line. The latest three year period has also seen an excellent 117% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 16% per annum during the coming three years according to the five analysts following the company. With the industry predicted to deliver 18% growth per annum, the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that Coeur Mining's P/S is higher than its industry peers. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Even after such a strong price drop, Coeur Mining's P/S still exceeds the industry median significantly. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Coeur Mining currently trades on a higher than expected P/S. 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.

You always need to take note of risks, for example - Coeur Mining has 1 warning sign we think you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.