Hecla Mining Company (NYSE:HL) shares have continued their recent momentum with a 27% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.
After such a large jump in price, given around half the companies in the United States' Metals and Mining industry have price-to-sales ratios (or "P/S") below 2.5x, you may consider Hecla Mining as a stock to avoid entirely with its 4.8x 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.
See our latest analysis for Hecla Mining
What Does Hecla Mining's Recent Performance Look Like?
Recent times have been advantageous for Hecla Mining as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Hecla Mining's future stacks up against the industry? In that case, our free report is a great place to start.Is There Enough Revenue Growth Forecasted For Hecla Mining?
In order to justify its P/S ratio, Hecla Mining would need to produce outstanding growth that's well in excess of the industry.
Taking a look back first, we see that the company grew revenue by an impressive 36% last year. The strong recent performance means it was also able to grow revenue by 40% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Shifting to the future, estimates from the seven analysts covering the company suggest revenue growth is heading into negative territory, declining 3.4% per year over the next three years. Meanwhile, the broader industry is forecast to expand by 15% per annum, which paints a poor picture.
With this information, we find it concerning that Hecla Mining is trading at a P/S higher than the industry. 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 Final Word
Shares in Hecla Mining have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.
Our examination of Hecla Mining's analyst forecasts revealed that its shrinking revenue outlook isn't drawing down its high P/S anywhere near as much as we would have predicted. 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.
Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Hecla Mining with six simple checks will allow you to discover any risks that could be an issue.
If you're unsure about the strength of Hecla Mining's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.