Subdued Growth No Barrier To Iochpe-Maxion S.A.'s (BVMF:MYPK3) Price

With a median price-to-sales (or "P/S") ratio of close to 0.2x in the Auto Components industry in Brazil, you could be forgiven for feeling indifferent about Iochpe-Maxion S.A.'s (BVMF:MYPK3) P/S ratio of 0.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Iochpe-Maxion

What Does Iochpe-Maxion's Recent Performance Look Like?

Iochpe-Maxion could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Iochpe-Maxion would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 2.5% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 12% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 3.0% per year over the next three years. With the industry predicted to deliver 14% growth each year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Iochpe-Maxion's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

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.

Given that Iochpe-Maxion'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. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Having said that, be aware Iochpe-Maxion is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

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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.