Many Still Looking Away From Embraer S.A. (BVMF:EMBR3)

With a price-to-sales (or "P/S") ratio of 1.3x Embraer S.A. (BVMF:EMBR3) may be sending bullish signals at the moment, given that almost half of all the Aerospace & Defense companies in Brazil have P/S ratios greater than 2.9x and even P/S higher than 10x are not unusual. 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 Embraer

How Embraer Has Been Performing

Recent revenue growth for Embraer has been in line with the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Embraer.

Is There Any Revenue Growth Forecasted For Embraer?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Embraer's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. As a result, it also grew revenue by 25% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 16% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 7.8% per annum growth forecast for the broader industry.

With this information, we find it odd that Embraer is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

A look at Embraer's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Embraer you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.