Golconda Gold Ltd. (CVE:GG) Stock Catapults 42% Though Its Price And Business Still Lag The Industry

Golconda Gold Ltd. (CVE:GG) shares have continued their recent momentum with a 42% gain in the last month alone. This latest share price bounce rounds out a remarkable 1,086% gain over the last twelve months.

Even after such a large jump in price, Golconda Gold may still be sending buy signals at present with its price-to-sales (or “P/S”) ratio of 6.6x, considering almost half of all companies in the Metals and Mining industry in Canada have P/S ratios greater than 8.2x and even P/S higher than 54x aren’t out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it’s justified.

We’ve found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Check out our latest analysis for Golconda Gold

What Does Golconda Gold’s P/S Mean For Shareholders?

With revenue growth that’s exceedingly strong of late, Golconda Gold has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on Golconda 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 Golconda Gold, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

Golconda Gold’s P/S ratio would be typical for a company that’s only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 139%. The latest three year period has also seen an excellent 103% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry’s one-year growth forecast of 66% shows it’s noticeably less attractive.

With this information, we can see why Golconda Gold is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Despite Golconda Gold’s share price climbing recently, its P/S still lags most other companies. 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.

Our examination of Golconda Gold confirms that the company’s revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn’t great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

The company’s balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Golconda Gold with six simple checks on some of these key factors.

If you’re unsure about the strength of Golconda Gold’s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.