Investors Aren't Entirely Convinced By Harmony Gold Mining Company Limited's (JSE:HAR) Revenues

With a median price-to-sales (or "P/S") ratio of close to 1.1x in the Metals and Mining industry in South Africa, you could be forgiven for feeling indifferent about Harmony Gold Mining Company Limited's (JSE:HAR) P/S ratio of 1.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Harmony Gold Mining

How Has Harmony Gold Mining Performed Recently?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Harmony Gold Mining has been doing quite well of late. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Harmony Gold Mining will help you uncover what's on the horizon.

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

Harmony Gold Mining's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. Pleasingly, revenue has also lifted 68% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 5.4% per year over the next three years. That's shaping up to be materially higher than the 2.6% per annum growth forecast for the broader industry.

With this information, we find it interesting that Harmony Gold Mining is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

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.

Looking at Harmony Gold Mining's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Harmony Gold Mining 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.