Revenues Working Against Aeris Indústria e Comércio de Equipamentos para Geração de Energia S.A.'s (BVMF:AERI3) Share Price Following 27% Dive

Aeris Indústria e Comércio de Equipamentos para Geração de Energia S.A. (BVMF:AERI3) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 63% share price decline.

Following the heavy fall in price, Aeris Indústria e Comércio de Equipamentos para Geração de Energia's price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Electrical industry in Brazil, where around half of the companies have P/S ratios above 1.6x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Aeris Indústria e Comércio de Equipamentos para Geração de Energia will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 38%. As a result, revenue from three years ago have also fallen 24% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 0.7% over the next year. Meanwhile, the rest of the industry is forecast to expand by 18%, which is noticeably more attractive.

With this information, we can see why Aeris Indústria e Comércio de Equipamentos para Geração de Energia is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Aeris Indústria e Comércio de Equipamentos para Geração de Energia's P/S?

Aeris Indústria e Comércio de Equipamentos para Geração de Energia's P/S has taken a dip along with its share price. 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.

As we suspected, our examination of Aeris Indústria e Comércio de Equipamentos para Geração de Energia's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 4 warning signs for Aeris Indústria e Comércio de Equipamentos para Geração de Energia (3 don't sit too well with us!) that we have uncovered.

If these risks are making you reconsider your opinion on Aeris Indústria e Comércio de Equipamentos para Geração de Energia, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.