There's No Escaping Regis Resources Limited's (ASX:RRL) Muted Revenues Despite A 25% Share Price Rise

Simply Wall St · 10/15 20:18

Regis Resources Limited (ASX:RRL) shareholders have had their patience rewarded with a 25% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 48%.

Even after such a large jump in price, Regis Resources' price-to-sales (or "P/S") ratio of 1.4x might still make it look like a strong buy right now compared to the wider Metals and Mining industry in Australia, where around half of the companies have P/S ratios above 63x and even P/S above 298x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Regis Resources

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ASX:RRL Price to Sales Ratio vs Industry October 15th 2024

How Regis Resources Has Been Performing

Regis Resources could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

How Is Regis Resources' Revenue Growth Trending?

Regis Resources' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. Pleasingly, revenue has also lifted 54% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 1.1% per year as estimated by the ten analysts watching the company. That's shaping up to be materially lower than the 559% per annum growth forecast for the broader industry.

With this in consideration, its clear as to why Regis Resources' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Shares in Regis Resources have risen appreciably however, its P/S is still subdued. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Regis Resources' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Regis Resources with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Regis Resources, explore our interactive list of high quality stocks to get an idea of what else is out there.