When you see that almost half of the companies in the Metals and Mining industry in the United States have price-to-sales ratios (or "P/S") below 1.3x, Hecla Mining Company (NYSE:HL) looks to be giving off strong sell signals with its 3.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
NYSE:HL Price to Sales Ratio vs Industry March 21st 2024
What Does Hecla Mining's Recent Performance Look Like?
Recent times have been pleasing for Hecla Mining as its revenue has risen in spite of the industry's average revenue going into reverse. It seems that many are expecting the company to continue defying the broader industry adversity, which has increased investors' willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on Hecla Mining will help you uncover what's on the horizon.
Do Revenue Forecasts Match The High P/S Ratio?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Hecla Mining's to be considered reasonable.
Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. The longer-term trend has been no better as the company has no revenue growth to show for over the last three years either. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.
Looking ahead now, revenue is anticipated to climb by 2.9% per year during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 378% growth per annum, the company is positioned for a weaker revenue result.
With this information, we find it concerning that Hecla Mining is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
What We Can Learn From Hecla Mining's P/S?
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.
Despite analysts forecasting some poorer-than-industry revenue growth figures for Hecla Mining, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.
We don't want to rain on the parade too much, but we did also find 1 warning sign for Hecla Mining that you need to be mindful 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.