Revenues Tell The Story For Warrior Met Coal, Inc. (NYSE:HCC) As Its Stock Soars 28%

Warrior Met Coal, Inc. (NYSE:HCC) shares have continued their recent momentum with a 28% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 8.7% isn't as impressive.

After such a large jump in price, Warrior Met Coal may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 3.5x, when you consider almost half of the companies in the Metals and Mining industry in the United States have P/S ratios under 2.8x and even P/S lower than 0.5x aren't out of the ordinary. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Warrior Met Coal

How Warrior Met Coal Has Been Performing

Warrior Met Coal hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Warrior Met Coal's future stacks up against the industry? In that case, our free report is a great place to start.

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

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

Retrospectively, the last year delivered a frustrating 23% decrease to the company's top line. As a result, revenue from three years ago have also fallen 32% overall. 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 three years should generate growth of 20% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 17% per annum, which is noticeably less attractive.

In light of this, it's understandable that Warrior Met Coal's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Warrior Met Coal's P/S Mean For Investors?

Warrior Met Coal's P/S is on the rise since its shares have risen strongly. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into Warrior Met Coal shows that its P/S ratio remains high on the merit of its strong future revenues. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Warrior Met Coal that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.