What Impala Platinum Holdings Limited's (JSE:IMP) 28% Share Price Gain Is Not Telling You
The Impala Platinum Holdings Limited (JSE:IMP) share price has done very well over the last month, posting an excellent gain of 28%. The annual gain comes to 153% following the latest surge, making investors sit up and take notice.
Since its price has surged higher, 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 2.6x 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 as high as it is.
Check out our latest analysis for Impala Platinum Holdings
How Has Impala Platinum Holdings Performed Recently?
While the industry has experienced revenue growth lately, Impala Platinum Holdings' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
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?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Impala Platinum Holdings' to be considered reasonable.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune 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.
Turning to the outlook, the next three years should generate growth of 15% per annum as estimated by the eight analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 17% per year, which is noticeably more attractive.
In light of this, it's alarming that Impala Platinum Holdings' P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
The Bottom Line On Impala Platinum Holdings' P/S
The large bounce in Impala Platinum Holdings' shares has lifted the company's P/S handsomely. 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.
Despite analysts forecasting some poorer-than-industry revenue growth figures for Impala Platinum Holdings, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. 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 2 warning signs for Impala Platinum Holdings 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.