Despite an already strong run, Century Aluminum Company (NASDAQ:CENX) shares have been powering on, with a gain of 31% in the last thirty days. The annual gain comes to 210% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, there still wouldn't be many who think Century Aluminum's price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in the United States' Metals and Mining industry is similar at about 1.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

How Has Century Aluminum Performed Recently?

Century Aluminum could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Century Aluminum's Revenue Growth Trending?

Century Aluminum's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.6%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.2% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 9.7% over the next year. That's shaping up to be materially lower than the 14% growth forecast for the broader industry.

In light of this, it's curious that Century Aluminum's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Century Aluminum's P/S

Century Aluminum's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Given that Century Aluminum's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

It is also worth noting that we have found 3 warning signs for Century Aluminum that you need to take into consideration.

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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