GoGold Resources Inc.'s (TSE:GGD) Earnings Haven't Escaped The Attention Of Investors

When close to half the companies in the Metals and Mining industry in Canada have price-to-sales ratios (or "P/S") below 2.6x, you may consider GoGold Resources Inc. ( TSE:GGD ) as a stock to avoid entirely with its 12.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for GoGold Resources

How GoGold Resources Has Been Performing

GoGold Resources could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think GoGold Resources' future stacks up against the industry? In that case, our free report is a great place to start .

How Is GoGold Resources' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as GoGold Resources' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 27% decrease to the company's top line. As a result, revenue from three years ago have also fallen 3.1% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 32% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 21%, which is noticeably less attractive.

In light of this, it's understandable that GoGold Resources' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does GoGold Resources' P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of GoGold Resources' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It should be said for GoGold Resources that the majority of their value is still untapped. What little revenue the company earns comes from a smaller production asset that is helping fund the drilling and economic studies of a much larger pre-production resource. And it seems investors are well aware as the company's share price reflects some of this value which is being baked into the elevated share price along side the revenue growth prospects for the company.

As always with mining companies in this stage of development, there's always more than meets the eye and you should look beyond a simple price multiple to ascertain quality and future growth prospects.

You should always think about risks. Case in point, we've spotted 1 warning sign for GoGold Resources you should be aware 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).

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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