A Piece Of The Puzzle Missing From Imperial Metals Corporation's (TSE:III) Share Price

With a price-to-sales (or "P/S") ratio of 1x Imperial Metals Corporation (TSE:III) may be sending very bullish signals at the moment, given that almost half of all the Metals and Mining companies in Canada have P/S ratios greater than 3.3x and even P/S higher than 22x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Imperial Metals

How Has Imperial Metals Performed Recently?

Recent times have been quite advantageous for Imperial Metals as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Imperial Metals will help you shine a light on its historical performance.

How Is Imperial Metals' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Imperial Metals' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an exceptional 36% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 169% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 22% shows it's noticeably more attractive.

In light of this, it's peculiar that Imperial Metals' P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Imperial Metals' P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We're very surprised to see Imperial Metals currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Before you settle on your opinion, we've discovered 2 warning signs for Imperial Metals that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.