Allpark Empreendimentos, Participações e Serviços S.A.'s (BVMF:ALPK3) 28% Share Price Plunge Could Signal Some Risk

To the annoyance of some shareholders, Allpark Empreendimentos, Participações e Serviços S.A. (BVMF:ALPK3) shares are down a considerable 28% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 37% share price drop.

Although its price has dipped substantially, there still wouldn't be many who think Allpark Empreendimentos Participações e Serviços' price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Brazil's Commercial Services industry is similar at about 0.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Allpark Empreendimentos Participações e Serviços

How Allpark Empreendimentos Participações e Serviços Has Been Performing

Allpark Empreendimentos Participações e Serviços certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling 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 Allpark Empreendimentos Participações e Serviços.

Do Revenue Forecasts Match The P/S Ratio?

Allpark Empreendimentos Participações e Serviços' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. The latest three year period has also seen an excellent 149% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 7.2% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 29% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Allpark Empreendimentos Participações e Serviços is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Allpark Empreendimentos Participações e Serviços' P/S

With its share price dropping off a cliff, the P/S for Allpark Empreendimentos Participações e Serviços looks to be in line with the rest of the Commercial Services industry. 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.

When you consider that Allpark Empreendimentos Participações e Serviços' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Allpark Empreendimentos Participações e Serviços with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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

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