Cerrado Gold Inc.'s (CVE:CERT) Shares Not Telling The Full Story

You may think that with a price-to-sales (or "P/S") ratio of 0.2x Cerrado Gold Inc. (CVE:CERT) is definitely a stock worth checking out, seeing as almost half of all the Metals and Mining companies in Canada have P/S ratios greater than 3x and even P/S above 25x aren't out of the ordinary. 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 Cerrado Gold

What Does Cerrado Gold's Recent Performance Look Like?

Cerrado Gold certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cerrado Gold.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Cerrado Gold would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered an exceptional 28% gain to the company's top line. Pleasingly, revenue has also lifted 113% 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.

Turning to the outlook, the next year should generate growth of 29% as estimated by the only analyst watching the company. With the industry only predicted to deliver 27%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Cerrado Gold's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To us, it seems Cerrado Gold currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Cerrado Gold you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.