Metalfrio Solutions S.A.'s (BVMF:FRIO3) 36% Cheaper Price Remains In Tune With Revenues

Metalfrio Solutions S.A. (BVMF:FRIO3) shares have had a horrible month, losing 36% after a relatively good period beforehand. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 298% in the last twelve months.

Although its price has dipped substantially, there still wouldn't be many who think Metalfrio Solutions' price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Brazil's Machinery industry is similar at about 0.8x. 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.

Check out our latest analysis for Metalfrio Solutions

What Does Metalfrio Solutions' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Metalfrio Solutions over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Metalfrio Solutions will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Metalfrio Solutions?

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

Retrospectively, the last year delivered a frustrating 1.4% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 26% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 7.2% shows it's about the same on an annualised basis.

With this in consideration, it's clear to see why Metalfrio Solutions' P/S matches up closely to its industry peers. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Final Word

With its share price dropping off a cliff, the P/S for Metalfrio Solutions looks to be in line with the rest of the Machinery industry. 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.

As we've seen, Metalfrio Solutions' three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. With previous revenue trends that keep up with the current industry outlook, it's hard to justify the company's P/S ratio deviating much from it's current point. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

You should always think about risks. Case in point, we've spotted 4 warning signs for Metalfrio Solutions you should be aware of, and 3 of them are potentially serious.

If these risks are making you reconsider your opinion on Metalfrio Solutions, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com