Revenues Not Telling The Story For Hecla Mining Company (NYSE:HL) After Shares Rise 31%

Hecla Mining Company (NYSE:HL) shares have continued their recent momentum with a 31% gain in the last month alone. The annual gain comes to 250% following the latest surge, making investors sit up and take notice.

After such a large jump in price, you could be forgiven for thinking Hecla Mining is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 10.6x, considering almost half the companies in the United States' Metals and Mining industry have P/S ratios below 2x. 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.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

View our latest analysis for Hecla Mining

What Does Hecla Mining's Recent Performance Look Like?

Recent times have been advantageous for Hecla Mining as its revenues have been rising faster 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 Hecla Mining.

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 46%. The strong recent performance means it was also able to grow revenue by 73% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 4.6% per year over the next three years. With the industry predicted to deliver 17% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Hecla Mining's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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.

What Does Hecla Mining's P/S Mean For Investors?

Hecla Mining's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

We've concluded that Hecla Mining currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Hecla Mining that 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.