Hecla Mining Company (NYSE:HL) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking further back, the 16% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.
Since its price has surged higher, you could be forgiven for thinking Hecla Mining is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.7x, considering almost half the companies in the United States' Metals and Mining industry have P/S ratios below 1.9x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
View our latest analysis for Hecla Mining
How Has Hecla Mining Performed Recently?
With revenue growth that's superior to most other companies of late, Hecla Mining has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. 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 Hecla Mining will help you uncover what's on the horizon.Is There Enough Revenue Growth Forecasted For Hecla Mining?
Hecla Mining's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
Taking a look back first, we see that the company grew revenue by an impressive 41% last year. The latest three year period has also seen a 28% overall rise in revenue, aided extensively by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.
Looking ahead now, revenue is anticipated to slump, contracting by 4.0% per annum during the coming three years according to the nine analysts following the company. With the industry predicted to deliver 5.2% growth per year, that's a disappointing outcome.
With this in mind, we find it intriguing that Hecla Mining's P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.
The Key Takeaway
The large bounce in Hecla Mining's shares has lifted the company's P/S handsomely. 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.
For a company with revenues that are set to decline in the context of a growing industry, Hecla Mining's P/S is much higher than we would've anticipated. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. At these price levels, investors should remain cautious, particularly if things don't improve.
The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Hecla Mining with six simple checks on some of these key factors.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.