Aeris Indústria e Comércio de Equipamentos para Geração de Energia S.A. (BVMF:AERI3) Held Back By Insufficient Growth Even After Shares Climb 28%

Those holding Aeris Indústria e Comércio de Equipamentos para Geração de Energia S.A. (BVMF:AERI3) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 59% share price decline over the last year.

Although its price has surged higher, Aeris Indústria e Comércio de Equipamentos para Geração de Energia may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Electrical industry in Brazil have P/S ratios greater than 1.5x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Aeris Indústria e Comércio de Equipamentos para Geração de Energia

What Does Aeris Indústria e Comércio de Equipamentos para Geração de Energia's P/S Mean For Shareholders?

Aeris Indústria e Comércio de Equipamentos para Geração de Energia could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Aeris Indústria e Comércio de Equipamentos para Geração de Energia.

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Aeris Indústria e Comércio de Equipamentos para Geração de Energia's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 28%. The last three years don't look nice either as the company has shrunk revenue by 16% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 15% as estimated by the only analyst watching the company. With the industry predicted to deliver 15% growth, that's a disappointing outcome.

In light of this, it's understandable that Aeris Indústria e Comércio de Equipamentos para Geração de Energia's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Aeris Indústria e Comércio de Equipamentos para Geração de Energia's P/S Mean For Investors?

Despite Aeris Indústria e Comércio de Equipamentos para Geração de Energia's share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It's clear to see that Aeris Indústria e Comércio de Equipamentos para Geração de Energia maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 4 warning signs for Aeris Indústria e Comércio de Equipamentos para Geração de Energia you should be aware of, and 3 of them are potentially serious.

If you're unsure about the strength of Aeris Indústria e Comércio de Equipamentos para Geração de Energia'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.