Investors Don’t See Light At End Of Patagonia Gold Corp.’s (CVE:PGDC) Tunnel

Patagonia Gold Corp.’s (CVE:PGDC) price-to-sales (or “P/S”) ratio of 0.5x might make it look like a strong buy right now compared to the Metals and Mining industry in Canada, where around half of the companies have P/S ratios above 2.6x and even P/S above 18x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it’s justified.

See our latest analysis for Patagonia Gold

What Does Patagonia Gold’s Recent Performance Look Like?

As an illustration, revenue has deteriorated at Patagonia Gold over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn’t good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Patagonia Gold will be hoping that this isn’t the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Patagonia Gold, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Patagonia Gold?

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

In reviewing the last year of financials, we were disheartened to see the company’s revenues fell to the tune of 32%. As a result, revenue from three years ago have also fallen 50% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 19% growth in the next 12 months, the company’s downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why Patagonia Gold’s P/S is lower than most of its industry peers. Nonetheless, there’s no guarantee the P/S has reached a floor yet with revenue going in reverse. There’s potential for the P/S to fall to even lower levels if the company doesn’t improve its top-line growth.

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The Final Word

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.

It’s no surprise that Patagonia Gold maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won’t provide any pleasant surprises either. If recent medium-term revenue trends continue, it’s hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we’ve discovered 4 warning signs for Patagonia Gold that you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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