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May 27, 2024
PI Global Investments

Not Many Are Piling Into New Gold Inc. (TSE:NGD) Just Yet

With a price-to-sales (or “P/S”) ratio of 1.2x New Gold Inc. (TSE:NGD) may be sending bullish signals at the moment, given that almost half of all the Metals and Mining companies in Canada have P/S ratios greater than 2x and even P/S higher than 14x are not unusual. Although, it’s not wise to just take the P/S at face value as there may be an explanation why it’s limited.

See our latest analysis for New Gold

TSX:NGD Price to Sales Ratio vs Industry January 19th 2024

What Does New Gold’s Recent Performance Look Like?

Recent times haven’t been great for New Gold as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you’d like to see what analysts are forecasting going forward, you should check out our free report on New Gold.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you’d be truly comfortable seeing a P/S as low as New Gold’s is when the company’s growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 16% gain to the company’s top line. As a result, it also grew revenue by 29% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 16% as estimated by the four analysts watching the company. With the industry predicted to deliver 15% growth , the company is positioned for a comparable revenue result.

With this information, we find it odd that New Gold is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

Typically, we’d caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It looks to us like the P/S figures for New Gold remain low despite growth that is expected to be in line with other companies in the industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

A lot of potential risks can sit within a company’s balance sheet. Take a look at our free balance sheet analysis for New Gold with six simple checks on some of these key factors.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Valuation is complex, but we’re helping make it simple.

Find out whether New Gold is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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