Potential Upside For PBG S.A. (BVMF:PTBL3) Not Without Risk

When you see that almost half of the companies in the Building industry in Brazil have price-to-sales ratios (or "P/S") above 1.1x, PBG S.A. (BVMF:PTBL3) looks to be giving off some buy signals with its 0.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for PBG

What Does PBG's Recent Performance Look Like?

For example, consider that PBG's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on PBG's earnings, revenue and cash flow.

How Is PBG's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as PBG's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 3.7% decrease to the company's top line. Even so, admirably revenue has lifted 73% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that to the industry, which is only predicted to deliver 4.3% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that PBG is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From PBG's P/S?

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.

Our examination of PBG revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

It is also worth noting that we have found 3 warning signs for PBG (1 doesn't sit too well with us!) that you need to take into consideration.

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