After Leaping 26% Impala Platinum Holdings Limited (JSE:IMP) Shares Are Not Flying Under The Radar

Impala Platinum Holdings Limited (JSE:IMP) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 102% in the last year.

After such a large jump in price, given close to half the companies operating in South Africa's Metals and Mining industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider Impala Platinum Holdings as a stock to potentially avoid with its 2.2x P/S ratio. 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 Impala Platinum Holdings

How Has Impala Platinum Holdings Performed Recently?

Impala Platinum Holdings 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. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Impala Platinum Holdings will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Impala Platinum Holdings' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 1.1%. As a result, revenue from three years ago have also fallen 28% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 14% per year during the coming three years according to the six analysts following the company. With the industry only predicted to deliver 11% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Impala Platinum Holdings is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Impala Platinum Holdings' P/S

Impala Platinum Holdings shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

We've established that Impala Platinum Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Metals and Mining industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Impala Platinum Holdings that you need to be mindful 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.