More Unpleasant Surprises Could Be In Store For Allpark Empreendimentos, Participações e Serviços S.A.'s (BVMF:ALPK3) Shares After Tumbling 26%

Allpark Empreendimentos, Participações e Serviços S.A. (BVMF:ALPK3) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 38% share price drop.

In spite of the heavy fall in price, it's still not a stretch to say that Allpark Empreendimentos Participações e Serviços' price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Commercial Services industry in Brazil, where the median P/S ratio is around 0.8x. 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.

Check out our latest analysis for Allpark Empreendimentos Participações e Serviços

What Does Allpark Empreendimentos Participações e Serviços' P/S Mean For Shareholders?

Recent times have been advantageous for Allpark Empreendimentos Participações e Serviços as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Keen to find out how analysts think Allpark Empreendimentos Participações e Serviços' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Allpark Empreendimentos Participações e Serviços' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 122% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 17% over the next year. Meanwhile, the rest of the industry is forecast to expand by 21%, which is noticeably more attractive.

With this in mind, we find it intriguing that Allpark Empreendimentos Participações e Serviços' P/S is closely matching its industry peers. 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 Key Takeaway

Following Allpark Empreendimentos Participações e Serviços' share price tumble, its P/S is just clinging on to the industry median P/S. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given that Allpark Empreendimentos Participações e Serviços' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. 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.

A lot of potential risks can sit within a company's balance sheet. 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.

If these risks are making you reconsider your opinion on Allpark Empreendimentos Participações e Serviços, 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.